Journal Final No.1 Vol.2 Jul- Dec 2013

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Angkor Khemara University, Cambodia

Cambodia University of Specialties, Cambodia

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Paññāsāstra University of Cambodia, Cambodia

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Bayon Book Publishing and National University of Management, Cambodia

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Angkor University, Cambodia

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Angkor University, Cambodia

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Cambodia University of Specialties, Cambodia

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Vanda Accounting Institute, Cambodia

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Bayon Book Publishing Manager, Cambodia

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The Business University of Costa Rica, Central America

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St. Clement University, United Kingdom (UK)

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EIILM University; India, Universidad Empresarial, Central America

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University of Gambia, West Africa

Prof. (Dr.) Arif Anjum

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Kigali Independent University, West Africa

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Ravenshaw University, India

Prof. (Dr). Oyat Christopher

Gulu University, Northern Uganda, East Africa

Vol. 1, No. 2, July – December, 2013

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International Academic Journal of Development

Research (IAJDR) Vol. 1 No.2, July-December, 2013

Contents Title Page

1. Capital Structure Analysis of Oil Industry:

A case study of Bharat Petroleum Corporation Limited (INDIA).

-Dr. S. K. KHATIK 1-20

2. History of Restriction of the Use and Display of Foreign

Educational Credentials through laws and decrees in

Germany from 1939 to 2012

-Georg Reiff 21-42

3. Glocal Operation Management

Step Ahead For Effective Supply Chain Managers

-Dr.Shakti Prasad Mohanty and Dr.Sanjay Kumar Rout 43-45

4. The Developing Concept Of The Professional The Nature

And Future Of Professionalism, And Its Implications For Academics,

Executives And Public Administrators

-Dr. Daniel Valentine 46-51

5. Relevance of Physics Education Programmes of The University of

the Gambia To the Teaching of Senior Secondary School

Physics in the Gambia.

- Dr.Nya Joe Jacob 52-73

6. Collective Learning and Knowledge Development in the Evolution of

Regional Clusters of High Technology SMEs in Europe

-Dr .David Keeble And Dr.Frank Wilkinson 74-91

7. Opportunity Of Financial Investmen In Cambodia

-Dr. Chhiv S. Thet 92-123

International Academic Journal of Development Research (IAJDR) Vol. 1, No. 2, July-December, 2013

1

Capital Structure Analysis of Oil Industry – A case study of

Bharat Petroleum Corporation Limited (INDIA).

Dr. S. K. Khatik (Ph.D., M. Phil, M.Com)*

ABSTRACT

Capital structure, or what is generally known as capital mix, is very important to control the overall

cost of capital in order to improve the earnings per share of shareholders. After globalization and

liberalization, various financial sector reforms were started by governments, such as reducing rates

of interest, Sale of Shares of PSUs etc., which directly affected the capital structure planning of

firms. Due to this situation, the oil industry also reorganized their capital structure. The financing

of a capital structure decision is a significant managerial decision. Initially, the company will have

to plan its capital structure at the time of its promotion. Subsequently, whenever funds have to be

raised for finance and investment, a capital structure decision is involved. In this research article,

researchers try to evaluate the concept of capital structure, capital structure planning and patterns

of capital structure in BPCL Ltd. We found that BPCL uses the maximum possible reserve fund and

long-term debt in their capital structure planning. During the study period, the company raised

more and more long-term funds to meet their development and expansion needs because debt is a

cheaper source of finance, especially from 2005-06 onwards when rates of interest decreased

regularly in the Indian capital market. But in this study it is found that EBIT is greater than the cost

of capital, which was favorable for the company, but it is also giving alarming indication for the

company because debt capital has been increasing continuously and it leads to financial risk. These

things may cause losses in near future.

Keywords: Debt-Equity, Financial Leverage, Capital Gearing, Solvency, Debt Services,

Proprietary funds

I. Introduction

Capital structure is the mix of debt and equity

securities that are used to finance companies

assets. It is defined as the amount of permanent

short-term debt, preferred stock, and common

equity used to finance a firm. Financial

structure is sometimes used as synonymous

with capital structure. However, financial

structure is more comprehensive in the sense


2

that it refers to in aggregate; the amount of total

current liabilities, long-term debt, preferred

stock and common equity used to fiancé a firm.

Therefore, capital structure is only a part of

financial structure, which refers mainly to the

permanent sources of the firm s financing.

Nonetheless, the present study considers the

source, which does not explicitly fall under the

definition of capital structure.

Decision on capital structure formulation or

long term financing is influenced by multiple

factors. Much of the focus as laid in the

research on the subject pertains to the target

capital structure, which the firm believes the

best in terms of the financial goals. Financial

economics has made a significant progress in

explaining the incentives that make companies

choose particular financing policies .In the last

two decades, a number of choices have been

proposed to explain the variations in the debt

equity ratio among firms. Increasingly the

profession is moving beyond an examination of

the basic leverage choice to the more detailed

aspects of financing decisions

The term capital structure is used to represent

the proportionate relationship between debt and

equity. Equity includes paid up share capital,

share premium, reserves and surplus (retained

earnings). Debt includes debenture and long-

term loans. The estimation of capital

requirements for current and future needs is

important for a firm and equally important is

the determining of the capital mix. Equity and

debt are the two principal sources of finance for

a business. ―The financing decisions have two

components. First, to decide how much total

funds are needed and, second, to decide the

source or their combinations to raise such

funds. The total quantity of fund needed,

however, depends upon the investment decision

of the firm. Given that the firm has good

estimates of how much capital funds are

needed, the problem then remains one of

determining the best mix of different sources to

be used in raising the required funds. The

process that leads to the final choice of the

capital structure is referred to as the capital

structure planning.‖ The financing of a capital

structure decision is a significant managerial

decision. The company will initially have to

plan its capital structure at the time of its

promotion. Subsequently, whenever funds have

to be raised to finance investment, a capital

structure decision is involved. ―In order to run

and manage a company funds are needed right

from the promotional stage up to the end,

finances play an important role in a company‘s

life. If funds are inadequate, the business

suffers and if the funds are not properly

managed, the entire organization suffers. It is,

therefore, necessary that a correct estimate of

the current and future need of capital be made

to have an optimum capital structure, which

will help an organization to run its work


3

smoothly and without any stress.‖ Estimation

of capital requirement is necessary, but the

formation of a capital structure is important.

According to Gerstenbeg ―Capital structure of a

company refers to the composition or make up

of its capitalization and it includes all long-term

capital resources viz.; loans, reserves, shares

and bonds.‖ The capital structure is made up of

debt and equity securities and refers to the

permanent Financing of a firm. It is composed of

long-term debt, preference share capital and

shareholder funds. Keeping this background in

view, an attempt has been made by the researchers

to evaluate the ‗capital structure‘ of BPCL which

are leading oil refineries in public sector in India.

II. About the Company

BPCL is one of the leading

petrochemical company in India. In the

financial year 2011-12, the total revenue from

operations was 2, 11,972.97 Crores. On 24th

January 1976, the Burmah Shell Group of

Companies was taken over by the Government

of India to form Bharat Refineries Limited. On

1st August 1977, it was renamed Bharat

Petroleum Corporation Limited. Opening up of

the Indian economy in the nineties brought with

it more competition and challenges, kindled by

the phased dismantling of the Administered

Pricing Mechanism (APM) and emergence of

additional capacities in the region in refining

and marketing. It was also the first refinery to

process newly found indigenous crude

(Bombay High), in the country. It has four

main refineries are located in Mumbai, Kochi,

Numaligarh and Bina. BPCL imports products

depending upon the domestic demand supply

scenario. BPCL on a regular basis imports its

LPG requirements mainly from the Middle

East. Occasional there are import requirements

of Gasoil, Kerosene, Gasoline and Base Oil.

BPCL exports products from its refineries on a

regular basis. The products which are exported

regularly are Fuel Oil, Naphtha and Base Oil

(Group II). Products exports are done on both

FOB and CFR basis. Both import and export of

products are done through tender. Tender

invitations are only sent to counterparties who

are registered with BPCL. Companies

interested in registering with BPCL for

buying/supplying products.

III. Objectives of study

This research study fulfils the following

objectives:

i. To examine the capital structure pattern

and policy of BPCL Ltd.

ii. To examine the relationship between

profitability and capital structure

Company.

iii. To give suggestions for improvement of

the capital structure position of BPCL.


4

IV. Hypotheses of the study

Following are the null hypotheses of the study:

i. There is no significant difference in

debt and equity capital in BPCL.

ii. There is no significant difference in

EBIT and EBT in BPCL.

V. Limitations of the study

i. This study is based on an analysis of

the financial statement for 10

financial years i.e. 2003-2012 of

BPCL.

ii. For the analysis of capital structure,

only secondary data, which are

derived from the annual reports, has

been taken in this study.

VI. Data and Research Methodology

To analyze the capital structure of

BPCL, secondary data, collected from the

annual reports of the company, was used along

with other published material of the companies.

For the analysis of capital structure, the annual

reports from the year 2002-03 to 2011-12 used

in this study. For an analysis of the capital

structure of the company, the ratios of capital

structure, common size statement and trend

analysis techniques are used. Statistical

techniques, such as mean growth rate and

coefficient of variation, are also used in

relevant areas. To make calculation much

easier and logical, the data are approximated in

the relevant places. For the analysis of the

capital structure of BPCL, the following ratios

related to capital structure are used:

Debt equity, Interest coverage

Funded debt to total capitalization,

Fixed asset to net worth

Proprietary fund Ratio, Solvency

Fixed assets to long-term funds, Capital

gearing

Total investment to long-term liabilities,

Reserve to equity capital

Financial leverage, Earnings per Share.

VII. Appraisal of capital structure

The capital structure of a company consists of

debt and equity securities, which provide

Finance for a firm. An optimum capital

structure is one that maximizes the market

Valuation of the firm‘s securities in order to

minimize the cost of its capital.

VIII.Findings with detailed discussion

Debt Equity Ratio: The debt-equity ratio is

calculated to measure the extent to which debt

financing has been used in a business. The ratio

indicates the proportionate claims of owners

and outsiders against the firm‘s assets. The

purpose is to get an idea of the cash available to

outsiders on the liquidation of the firm. As a

general rule there should be an approximate


5

mix of owner‘s funds and outsider‘s funds in

financing the firm‘s assets. However, the

Capital structure analysis of the oil industry

owners want to carry on their business with a

maximum of outsider‘s funds in order to

reduce the risk of their investments and to

increase their earning per share by paying a

lower fixed rate of interest to outsiders. On the

other hand, outsiders want those Shareholders

(owners) to invest and risk a proportionate

share of their investments. Therefore, the

interpretation of this ratio depends upon the

financial policy of the firm and upon the firm‘s

nature of business.

Total Debt

Debt Equity Ratio = —————

Total Equity

Table no.1. Debt Equity Ratio (Rs. In Crores)

Source: Compiled from the annual reports of BPCL. (From 2003 - 2012)

Interpretation

According to table no. 1, the debt equity ratio

for the year 2003 was 0.85:1. The ratio then

decreased in the year 2004 which was then

0.60:1. This ratio then increased and was 0.76:1

in the year 2005 and in the year 2006 the debt

equity ratio again increased and was 1.06:1.

This ratio further increased and was 1.19:1 in

the year 2007. In the year 2008 the debt equity

ratio was 1.41:1 and in the year 2009 the ratio

Year Debt(Rs.) Equity(Rs.) Debt-Equity Ratio

2003 4032.42 4,747.43 0.85

2004 3512.12 5,849.72 0.6

2005 4850.64 6388.43 0.76

2006 9729.44 9139.43 1.06

2007 12211.8 10273.5 1.19

2008 16503.7 11676.8 1.41

2009 22410.7 12128.1 1.85

2010 23054.5 13086.7 1.76

2011 19979.4 14057.6 1.42

2012 25861.2 14913.9 1.73

Mean 14214.6 10226.2 1.26

S.D. 8058.95 3400.59 0.42

C.V. 56.69% 33.25% 33.27%

Growth Rate 541.33% 214.15% 104.15%


6

was at its maximum when it was 1.85:1. The

debt equity ratio then decreased in the year

2010 when it was 1.76:1 and then further

decreased in the year 2011 when it was 1.42:1.

In the year 2012 the ratio was 1.73:1. The

overall average of debt equity ratio for the

period of the study was 1.26:1 and the standard

deviation was 0.42.The coefficient of variation

for the debt equity ratio was 33.27% and the

growth rate for the same was 104.15%.

Funded Debt to Total capitalization: The

ratio establishes a link between the long-term

funds raised from outsiders and total Long-term

funds available in the business. Funded debts to

total capitalization are also one of the important

ratios that explain the capital structure position

of a company. There is no rule of thumb but,

still, the lesser the reliance on outsiders the

better it will be. Also, the smaller the ratio the

better it will be. That the portion of debt

finance increases. It means that, in the study

period, the company has taken long-term

borrowing and ratio increases due to decreases

in free reserves.

Funded Debt

= —————————

Total Capitalization

Table no.2. Funded Debt to Total Capitalization Ratio (Rs. In Crores)

Year Funded

Debt(Rs.) Total Capitalization(Rs.)

Funded Debt to Total

Capitalization Ratio

2003 4032.42 8,779.84 0.46

2004 3512.12 9,361.84 0.38

2005 4850.64 11239.1 0.43

2006 9729.44 18868.9 0.52

2007 12211.8 22485.4 0.54

2008 16503.7 28180.6 0.59

2009 22410.7 34538.8 0.65

2010 23054.5 36141.2 0.64

2011 19979.4 34037 0.59

2012 25861.2 40775.1 0.63

Mean 14214.6 24440.8 0.54

S.D. 8058.95 11373.4 0.09

C.V. 56.69% 46.53% 16.57%

Growth Rate 541.33% 364.42% 38.09%



7

Interpretation

Table no 2, depicts that the funded debt to total

capitalization ratio was 0.46:1 in the year 2003.

The funded debt to total capitalization ratio in

the year 2004 was 0.38:1 and the ratio for the

year 2005 was 0.43:1. In the year 2006 the

funded debt to total capitalization ratio was

0.52:1 and the ratio for the same was 0.54:1 in

the year 2007. In the year 2008 the ratio was

0.59:1 and in the year 2009 the ratio was

0.65:1. In the year 2010 the funded debt to total

capitalization ratio was 0.64:1 and the ratio in

the year 2011 was 0.59:1. The ratio for the

same was 0.63:1 in the year 2012. The overall

average of the funded debt to total

capitalization ratio was 0.54:1 and the standard

deviation was 0.09. The coefficient of variation

for the funded debt to total capitalization ratio

was 16.57% and the growth rate for the same

was 38.09%.

Proprietary Ratio: This ratio established the

relationship between shareholders funds and

the total assets of the firm. The components of

this ratio are shareholder‘s funds and total

assets. As the proprietary ratio represents the

relationship of owners funds to total assets, the

higher the ratio (the share of the shareholders in

the total capitalization of the company) the

better is the long-term solvency and, from the

capital structure point of view, this ratio

indicates the extent to which the assets of the

company can be lost without affecting the

interest of the creditors of the company.

Proprietary Funds

Proprietary Ratio = ————————

Total Assets


8

Table no.3. Proprietary Fund Ratio (Rs. In Crores)

Year Proprietary Fund(Rs.) Total Assets(Rs.) Proprietary Fund Ratio

2003 4,747.43 23,140.63 0.21

2004 5,849.72 25,225.43 0.23

2005 6388.43 28755.74 0.22

2006 9139.43 39361.3 0.23

2007 10273.5 45592.53 0.23

2008 11676.8 55496.22 0.21

2009 12128.1 61373.34 0.2

2010 13086.7 69459.46 0.19

2011 14057.6 73006.91 0.19

2012 14913.9 83337.37 0.18

Mean 10226.2 50474.89 0.21

S.D. 3400.59 20238.1 0.02

C.V. 33.25% 40.10% 8.64%

Growth Rate 214.15% 260.13% -12.77% Source: Compiled from the annual reports of BPCL. (From 2003 - 2012)

Interpretation

From table no.3, it is known that the

proprietary fund ratio was 0.21:1 in the year

2003 and the proprietary ratio was same for the

year 2004, 2006 and 2007 with value of

0.23:1. The proprietary ratio in the year 2005

was 0.22:1. In the year 2008 the ratio was

0.21:1 and the ratio in the year 2009 was

0.20:1. The proprietary fund ratio was same in

the year 2010 and in the year 2011 when it was

0.19:1 and in the year 2012 it was 0.18:1. The

overall average of the proprietary fund ratio

was 0.21:1 and the standard deviation was 0.02.

The coefficient of variation for the proprietary

fund ratio was 8.64% and the growth rate for

the same was -12.77%.

Solvency Ratio: The ratio indicates the

relationship between the total liabilities of

outsiders to total Assets of a firm. This ratio is

a small variant of equity ratio and can be

simply calculated as 100 – equity ratio.

Generally, the lower the ratio of total liabilities

to total assets, the more satisfactory or stable is

the long-term solvency position of a firm.

External Liabilities

Solvency Ratio = —————————

Total Assets


9

Table no.4. Solvency Ratio (Rs. In Crores)

Year External Liabilities(Rs.) Total Assets(Rs.) Solvency Ratio

2003 12027 23,140.63 0.52

2004 11922.2 25,225.43 0.47

2005 14018.6 28755.74 0.49

2006 19136.4 39361.3 0.49

2007 23485.6 45592.53 0.52

2008 31084 55496.22 0.56

2009 35242 61373.34 0.57

2010 40185.7 69459.46 0.58

2011 41937.7 73006.91 0.57

2012 52093.7 83337.37 0.63

Mean 28113.3 50474.89 0.54

S.D. 13390.8 20238.1 0.05

C.V. 47.63% 40.10% 8.83%

Growth Rate 333.14% 260.13% 20.27%


Interpretation

According to table no. 4, the solvency ratio in

the year 2003 was 0.52:1 which decreased and

was at its lowest in the year 2004 to 0.47:1.

The solvency ratio was the same for the year

2005 and 2006 when it was 0.49:1. In the year

2007 the solvency ratio then increased and was

0.52:1. The solvency ratio again increased in

the year 2008 when it was 0.56:1. The ratio

further increased and was same for two years

i.e., for 2009 and 2011 when it was 0.57:1. In

the year 2010 the solvency ratio was 0.58:1 and

in the year 2012 the solvency ratio was at its

maximum when it was 0.63:1. The overall

average of the solvency ratio was 0.54:1 and

the standard deviation was 0.05. The

coefficient of variation for the solvency ratio

was 8.83% and the growth rate for the same

was 20.27%.

Fixed Assets Ratio: The ratio establishes the

relationship between fixed assets and

shareholders fund. If the ratio is less than

100%, it implies that owner‘s funds are more

than total fixed assets and the shareholders

provide a part of the working capital. When the

ratio is more than 100%, it implies that owner‘s

funds are not sufficient to finance the fixed

assets and the firm has to depend upon

outsiders to finance the fixed assets. There is no

‗Rule of thumb‘ to interpret this ratio but 60%

to 65% is considered to be a satisfactory ratio

in the case of an industrial undertaking. The

ratio of fixed assets to net worth indicates the

extent to shareholders funds is into fixed assets.


10

Net Fixed Assets

Fixed Assets Ratio = ————————

Net Worth

Table no.5. Fixed Assets Ratio (Rs. In Crores)

Year Net Fixed Assets(Rs.) Net worth(Rs.) Fixed Assets Ratio

2003 6,366.22 4,747.43 1.34

2004 7,453.48 5,849.72 1.27

2005 8348.67 6388.43 1.31

2006 11085.5 9139.43 1.21

2007 11833.4 10273.54 1.15

2008 12735.4 11676.84 1.09

2009 14003.3 12128.11 1.15

2010 16187.1 13086.71 1.24

2011 17011.6 14057.62 1.21

2012 17731.4 14913.86 1.19

Mean 12275.6 10226.17 1.22

S.D. 3819.66 3400.59 0.07

C.V. 31.12% 33.25% 5.93%

Growth Rate 178.52% 214.15% -11.34%


Interpretation

From table no.5, it is known that the

fixed assets ratio was 1.34:1 in the year 2003

which was the maximum. In the year 2004 the

fixed assets ratio decreased and was 1.27:1 and

then the fixed assets ratio increased and was

1.31:1 in the year 2005. The fixed assets ratio

decreased and was the same for two years i.e.,

2006 and 2011 when it was 0.21:1. In the year

2007 the fixed assets ratio then decreased when

it was 1.15:1 and was the same in the year 2009

as well. In the year 2008 the fixed assets ratio

was 1.09:1. The fixed assets ratio then

increased in the year 2010 when it was 1.24:1

and in the year 2012 the fixed assets ratio was

1.19:1. The overall average of the fixed assets

ratio was 1.22:1 and the standard deviation was

0.07. The coefficient of variation for the fixed

assets ratio was 5.93% and the growth rate for

the same was -11.34%.

Fixed Assets to long-term funds: The ratio

indicates the extent to which the total assets are

financed by the long-term funds of the firm.

Generally, the total of fixed assets should be

equal to total long-term funds. But, where fixed

assets exceed the total of long-terms funds it

implies that the firm has been financing a part

of the fixed assets out of liquid funds or


11

working capital, which is not a good policy.

And, if the total long-term funds are more than

the total fixed assets, it means that a part of the

working capital requirements are being met out

of the long-term funds of the firms:

Fixed Assets

= ———————

Long term funds

Table no.6. Fixed Assets to Long Term Funds Ratio (Rs. In Crores)

Year Net Fixed Assets(Rs.) Long Term Funds(Rs.) Fixed Assets to Long

Term Funds Ratio

2003 6,366.22 8,779.84 0.73

2004 7,453.48 9,361.84 0.8

2005 8348.67 11239.07 0.74

2006 11085.5 18868.86 0.59

2007 11833.4 22485.37 0.53

2008 12735.4 28180.58 0.45

2009 14003.3 34538.76 0.41

2010 16187.1 36141.21 0.45

2011 17011.6 34037.03 0.5

2012 17731.4 40775.08 0.43

Mean 12275.6 24440.76 0.56

S.D. 3819.66 11373.42 0.14

C.V. 31.12% 46.53% 24.26%

Growth Rate 178.52% 364.42% -40.03%


Interpretation

Table no 6, shows that the fixed assets to long

term funds ratio in the year 2003 was 0.73:1

and in the year 2004 the ratio was 0.80:1. In the

year 2005 the fixed assets to long term funds

ratio was 0.74:1 and in the next year it was

0.59:1. The ratio for the year 2007 was 0.53:1

and in the year 2008 it was 0.45:1 and it was

same for the year 2010 as well. In the year

2009 the fixed assets to long term funds ratio

was 0.41:1 and in the year 2011 the fixed assets

to long term funds ratio was 0.50:1. At the end

in the year 2012 the ratio was 0.43:1. The

overall average of the fixed assets to long term

funds ratio was 0.56:1 and the standard


for the fixed assets to was 24.26% and the

growth rate for the same was -40.03%.

Long term funds ratio : Interest coverage

Ratio Net income to debt service ratio or

simply debt service ratio is used to test the debt

servicing capacity of a firm. The ratio is also


12

known as interest coverage ratio or Coverage

ratio or fixed changes cover or times interest

earned. This ratio is calculated by dividing the

net profit before interest and tax by fixed

interest charges. It indicates the interest-paying

capacity of a firm.

Operating profit

= ——————————

Fixed Interest Charges

Table no.7. Interest Coverage Ratio (Rs. In Crores)

Year EBIT(Rs.) Fixed Interest

Charges(Rs.)

Interest Coverage

Ratio (Times)

2003 2,239.48 245.95 9.11

2004 2,740.49 104.97 26.11

2005 1496.15 139.8 10.7

2006 654.61 247.41 2.65

2007 3300.31 532.67 6.2

2008 3269.76 672.47 4.86

2009 3170.48 2166.37 1.46

2010 3377 1010.95 3.34

2011 3495.67 1100.78 3.18

2012 3683.76 1799.59 2.05

Mean 2742.77 802.1 6.96

S.D. 937.76 679.71 7

C.V. 34.19% 84.74% 100.57%

Growth Rate 64.49% 631.70% -77.52%


Interpretation

According to table no. 7, the interest coverage

ratio was 9.11 times in the year 2003 and the

same in the year 2004 was 26.11 times, which

was the maximum, then it decreased and was

10.70 times in the year 2005. The interest

coverage ratio in the year 2006 was 2.65 times

which increased in the year 2007 and was 6.20

times. The interest coverage ratio was 4.86

times in the 2008 and in the year 2009 the

interest coverage ratio was 1.46 times. This

ratio increased in the year 2010 when it was

3.34 times which then decreased in the year

2011 to 3.18 times. The interest coverage ratio

in the year 2012 was 2.05 times. The overall

average of the interest coverage ratio was 6.96

and the standard deviation was 7.00. The

coefficient of variation for the interest coverage

ratio was 100.57% and the growth rate for the

same was -77.52%.


13

Capital Gearing ratio: The term capital

gearing is used to describe the relationship

between equity share capital, including reserves

and surpluses, and preference share capital and

other fixed interest-bearing loans. If preference

shares capital and other fixed interest-bearing

loans exceed the equity share capital including

reserves the firm is said to be highly geared.

The firm is said to be have a low gearing ratio

if preference shares and other fixed interest-

bearing loans are less than the equity capital

and reserves.

Equity Share Capital

= —————————————————

Preference shares & Long Term Loans

Table no.8. Capital Gearing Ratio (Rs. In Crores)

Year Equity(Rs.) Preference Share &

Long Term Loans(Rs.) Capital Gearing Ratio

2003 4,747.43 4032.42 1.18

2004 5,849.72 3512.12 1.67

2005 6388.43 4850.64 1.32

2006 9139.43 9729.44 0.94

2007 10273.5 12211.83 0.84

2008 11676.8 16503.74 0.71

2009 12128.1 22410.65 0.54

2010 13086.7 23054.5 0.57

2011 14057.6 19979.41 0.7

2012 14913.9 25861.18 0.58

Mean 10226.2 14214.59 0.9

S.D. 3400.59 8058.95 0.36

C.V. 33.25% 56.69% 39.30%

Growth Rate 214.15% 541.33% -51.02%


Interpretation

From table no.8, it is known that the capital

gearing ratio was 1.18:1 in the year 2003 and

the ratio in the year 2004 was 1.67:1. The

capital gearing ratio was 1.32:1 in the year

2005 and in the year 2006 it was 0.94:1. In

the year 2007 the capital gearing ratio was

0.84:1 and in the year 2008 the capital gearing

ratio was 0.71:1. The capital gearing ratio was

0.54:1 in the year 2009 and in the year 2010

the ratio for the same was 0.57:1. The capital

gearing ratio in the year 2011 was 0.70:1 and

it was 0.58:1 in the year 2012. The interest

coverage ratio in the year 2012 was 2.05


14

times. The overall average of the capital

gearing ratio was 0.90 and the standard

deviation was 0.36. The coefficient of

variation for the capital gearing ratio was

39.30% and the growth rate for the same was

-51.02%.

Total Investment to long term Funds:

The next ratio is calculated by dividing total

long-term funds by long-term liabilities.

Shareholders‘ funds and long-term liabilities

are components of total investments, and

debentures and long-term loans are

components of long-term liabilities,. This

ratio explains the position of long-term

liabilities in total investments. Normally, a

lower portion of long-term liabilities in total

investments is considered good in case of

solvency position of business.

Total Investment

= ——————————

Long term Liabilities

Table No.9. Total Investments to Long Term Liabilities Ratio (Rs. In Crores)

Years Long Term

Funds(Rs.)

Long Term

Liabilities(Rs.)

Total Investments to Long

Term Liabilities Ratio

2003 8,779.84 4032.42 2.18

2004 9,361.84 3512.12 2.67

2005 11239.1 4850.64 2.32

2006 18868.9 9729.44 1.94

2007 22485.4 12211.83 1.84

2008 28180.6 16503.74 1.71

2009 34538.8 22410.65 1.54

2010 36141.2 23054.5 1.57

2011 34037 19979.41 1.7

2012 40775.1 25861.18 1.58

Mean 24440.8 14214.59 1.9

S.D. 11373.4 8058.95 0.36

C.V. 46.53% 56.69% 18.65%

Growth Rate 364.42% 541.33% -27.59%


Interpretation

According to table No. 9, the total investment

to long term liabilities ratio in the year 2003

was 2.18:1 which then increased in the next

year to 2.67:1. The total investment to long

term liabilities ratio in the year 2005 was 2.32:1

and the ratio then decreased and kept on


15

decreasing. In the year 2006 the ratio was

1.94:1. The total investment to long term

liabilities ratio in the year 2007 was 1.84:1 and

it was 1.71:1 in the year 2008. The total

investment to long term liabilities ratio in the

year 2009 was 1.54:1 and for the year 2010 the

ratio was 1.57:1. The total investment to long

term liabilities ratio was 1.70:1 in the year 2011

and it was 1.58:1 in the year 20 12. The

overall average of the total investment to long

term liabilities ratio was 1.90 and the standard


for the total investment to long term liabilities

ratio was 18.65% and the growth rate for the

same was -27.59%.

Reserve fund to equity share capital: The

next ratio establishes the relationship between

reserves and equity share capital. The ratio

indicates that how much profit does the firm

generally retain to fund for future growth. The

higher the ratio, the better is the position of the

firm generally:

Reserves & Surplus

= ———————————

Equity Share Capital

Table no.10. Reserve Fund to Equity Share Capital Ratio (Rs. In Crores)

Years Reserve Fund (Rs.) Equity Share

Capital(Rs.)

Reserve Fund to Equity

Share Capital Ratio

2003 4,447.43 300 14.82

2004 5,549.72 300 18.5

2005 6088.43 300 20.29

2006 8777.88 361.54 24.28

2007 9912 361.54 27.42

2008 11315.3 361.54 31.3

2009 11766.57 361.54 32.55

2010 12725.17 361.54 35.2

2011 13696.08 361.54 37.88

2012 14552.32 361.54 40.25

Mean 9883.09 343.08 28.25

S.D. 3375.84 28.2 8.17

C.V. 34.16% 8.22% 28.93%

Growth Rate 227.21% 20.51% 171.51%



16

Interpretation

Table no 10, shows that in the year

2003 the reserve fund to equity share capital

ratio was 14.82:1 which was the lowest and

then the ratio increased and it kept on

increasing for the remaining study period. In

the year 2004 the reserve fund to equity share

capital ratio was 18.50:1 and in the year 2005

the reserve fund to equity share capital ratio

was 20.29:1. The ratio in the year 2006 was

24.28:1 and in the next year i.e. in 2007 the

reserve fund to equity share capital ratio was

27.42:1. The ratio for the same was 31.30:1 and

it was 32.55:1 in the year 2009. The ratio in the

year was 35.20:1 and it increased to 37.88: 1 in

the year 2011 and further increased in the year

2012 to 40.25:1. The overall average of the

reserve fund to equity share capital ratio was

28.25 and the standard deviation was 8.17. The

coefficient of variation for the reserve fund to

equity share capital ratio was 28.93% and the

growth rate for the same was 171.51%.

Financial leverage: The term financial

leverage refers to the use of fixed charges, such

as a debenture, and the use of variable charges

or securities, such as equity shares, in the

financial structure and total assets of the firm.

So, the financial leverage refers to the presence

of a fixed Charge in the income statement of

the firm. This fixed charge is fixed in amount

and does not vary with the changes in the

EBIT, whereas the return available to the

equity shareholders, which is a residual

balance, is affected by the changes in EBIT.

EBIT

= —————

EBT


17

Table no.11. Financial Leverage Ratio (Rs. In Crores)

Years EBIT(Rs.) EBT(Rs.) Financial Leverage Ratio

2003 2,239.48 1993.537 1.12

2004 2,740.49 2635.515 1.04

2005 1496.15 1356.348 1.1

2006 654.61 407.195 1.61

2007 3300.31 2767.644 1.19

2008 3269.76 2597.287 1.26

2009 3170.48 1004.11 3.16

2010 3377 2366.05 1.43

2011 3495.67 2394.89 1.46

2012 3683.76 1884.17 1.96

Mean 2742.77 1940.67 1.53

S.D. 937.76 745.74 0.6

C.V. 34.19% 38.43% 39.29%

Growth Rate 64.49% -5.49% 74.04%


Interpretation

According to table no.11, the financial leverage

ratio in the year 2003 was 1.12:1 and in the

year 2004 the ratio was 1.04:1. This ratio

increased in the year 2005 when it was 1.10:1.

The financial leverage ratio in the year 2006

further increased and was 1.61:1. In the year

2007 the financial leverage ratio was 1.19:1

and this ratio in the year 2008 was 1.26:1. This

ratio was highest in the year 2009 when it was

3.16:1 and then it decreased in the year 2010 to

1.43:1. The financial leverage ratio in the year

2011 was 1.46:1 and in the year 2012 the ratio

increased to 1.96:1. The overall average of the

financial leverage ratio was 1.53 and the

standard deviation was 0.60. The coefficient of

variation for the financial leverage ratio was

39.29% and the growth rate for the same was

74.04%.

Earnings per Share (EPS)

Total earnings divided by the number of

share. Companies often use a weighted

average of shares outstanding over the

reporting term. EPS can be calculated for

the previous year ("trailing EPS"), for the

current year ("current EPS"), or for the coming

year ("forward EPS"). Note that last year's EPS

would be actual, while current year

and forward year EPS would be estimates.

Net profit after preference dividend

= ———————————————

No. of Equity Share

http://www.investorwords.com/11320/total.html

http://www.investorwords.com/1618/earnings.html

http://www.investorwords.com/992/company.html

http://www.investorwords.com/5854/weighted_average.html

http://www.investorwords.com/5854/weighted_average.html

http://www.investorwords.com/10691/previous.html

http://www.investorwords.com/3351/note.html

http://www.investorwords.com/8761/actual.html

http://www.investorwords.com/2057/forward.html

http://www.investorwords.com/15814/estimate.html


18

Table no.12. Earnings per Share (Rs. In Crores)

Years Earnings for Equity

Shareholders(Rs.)

No. of Equity

Shares

Earnings per

Share

2003 1,250.03 30 41.67

2004 1,694.57 30 56.49

2005 965.8 30 32.19

2006 291.65 36.15 8.07

2007 1805.48 36.15 49.94

2008 1580.56 36.15 43.72

2009 735.9 36.15 20.36

2010 1537.62 36.15 42.53

2011 1546.68 36.15 42.79

2012 1311.27 36.15 36.27

Mean 1271.96 34.31 37.4

S.D. 452.62 2.82 13.47

C.V. 35.58% 8.22% 36.01%

Growth Rate 4.90% 20.50% -12.95%


Interpretation

From table no.12, it is known that the earning

per share for the year 2003 was Rs.41.67 which

increased to Rs.56.49 in the year 2004. The

earning per share for the year 2005 was

Rs.32.19 and it was Rs.8.07 in the year 2006.

The earning per share for the year 2007 was

Rs.49.94 and in the year 2008 the earning per

share was Rs.43.72. The earning per share was

Rs.20.36 for the year 2009 and in the year 2010

the earnings per share was Rs.42.53. The

earning per share for the year 2011 was

Rs.42.79 and it was Rs.36.27 in the year 2012.

The overall average of the earning per share

was Rs.37.40 and the standard deviation was

13.47. The coefficient of variation for the

earning per share was 36.01% and the growth

rate for the same was -12.95%.

Testing of Hypothesis

H01 : The Coefficient of Correlation

between Debt and Equity was 0.70

which shows a positive relation between

Net profit and Net sales. It means that

both Debt and Equity were moving in

the same direction but relatively at a

moderate pace. When Students t test

was calculated with these two

parameters, the calculated value of t=

38.81 was less than the table value of t=

2.305. Hence the null hypothesis is

rejected and alternate hypothesis stands

accepted. It shows that there is

significant difference between Debt and

Equity during the period of study.

H02 : The Coefficient of Correlation

between EBIT and EBT was 0.96 which


19

shows a higher positive relation

between Current Assets and Current

Liabilities. It means that both EBIT and

EBT were moving in the same direction

but relatively at a higher pace. When

Students t test was calculated with these

two parameters, the calculated value of

t= 3.82 was more than the table value of

t= 2.305. Hence the null hypothesis is

rejected and alternate hypothesis stands

accepted. It shows that there is

significant difference between EBIT

and EBT during the period of study.

Findings and Suggestions

The Debt Equity position of the

company is not adequate as per the

financial aspect, because a company can

easily employ a debt capital up o 2:1

times. This will be adequate for the

company as per the Indian scenario.

During the study period it has employed

less debt capital in the business. But

after 2005-06 the debt capital has been

increasing up to 2011-12, which is good

sign for the company. Company enjoys

worth of debt capital in their business.

Funded debt to total capitalization in the

beginning stage was not satisfactory but

it gradually increased till 2011-12.

Proprietary ratio was low during the

period of study. It needs upliftment of

this ratio for better future prospects.

Solvency ratio of the firm was

satisfactory. Fixed assets to net worth of

the firm was also not satisfactory. Fixed

assets to long term loans was

satisfactory as the firm was having good

financial policies.

Interest coverage ratio of the firm was

satisfactory. It was able to overcome the

Financial risk and able to bear the

financial cost timely.

Capital gearing ratio observed low

gearing value in the starting years and

then it shifted to high gearing value in

remaining years.

Financial Leverage of the firm was

satisfactory as it was able to pay the

interest on long term loans and

advances timely.

In the beginning years the firm does not wanted

to take financial risk as the amount of debt

capital employed in the business was low. But

BPCL have return on capital employed greater

than the rate of interest, then after the company

increased the debt capital. The capital structure

of the firm may be adequate, but it may require

some improvement in the debt capital position


20

of the business as per the nature of the

business. The company should make better

investment avenues for utilization of huge

amount of reserves and surplus.

References

Annual reports of bpcl from 2003 to 2011-12

Balwani, N. (2000) Accounting and Finance

for Managers, Amexcel Publisher‘s

Private Ltd., p.772.

Banerjee, S.K. (2000) Financial Management,

S. Chand and Company, New Delhi.

Bhalla, V.K. (1997) Financial Management

and Policy, 1st ed., Anmol Publications,

Engler, G.N. (Ed.) (1973) Managerial Finance:

Cases and Readings, Inc, Dalla. Galgotia

Publishing Company, New Delhi, p.860.

Guthmann, H.G. and Dougall, H.E. (1995)

Corporate Financial Policy, 4th

ed.,

Prentice Hall of India Pvt. Ltd, pp.84-85.

Hampton, J.J. (1998) Financial Decision-

Making, Concepts, Problem and Cases,

Prentice Hall of India Pvt. Ltd, New

Delhi.

Jagdish, Prakesh, Rao and Shukla (1996)

Administration of Public Enterprise in

India, Himalaya Publishing Company,

New Delhi.

Khan and Jain (1997) Financial Management,

Tata McGraw Hill Publishing

Company, New Delhi. New Delhi.

Pandey, I.M. (2000) Financial Management

Theory and Practices, Vikas Publishing

Company, New Delhi.

Rustagi, R.P. (2000) Financial Management,

Theory, Concept and Problems, 2nd ed.,

Wachowicz, V.H.J.C. (1998) Fundamental of

Financial Management, 9th ed.,

Prentice Hall Inc, New Delhi.

Walker, E.W. (1974) Essentials of Financial

Management, Prentice Hall of India Pvt.

Ltd, New Delhi.

* Dr. S. K. KHATIK (Ph.D., M. Phil, M.Com)

Professor & Head, Department of

Commerce, Barkatullah University,

BHOPAL.

Dean, Faculty of Commerce, Barkatullah

University , Bhopal. Chairman, Board of

Studies Commerce, Barkatullah University,

BHOPAL.

Mobile: 9425382036

E-Mail: [email protected]


21

History of Restriction of the Use and Display of Foreign Educational

Credentials through laws and decrees in Germany from 1939 to 2012

Dr. Georg Reiff*

ABSTRACT

Contemporary Germany is usually known as a democratic country, deeply integrated into the US-

American dominated Western political bloc. However, little-known to the general public, there are

obviously legal remnants that stem from the previous infamous Hitler Regime. After seeing some

fellow alumni from a non-German distance learning university in 2007 encountering problems in

Germany, I decided to investigate deeper the underlying legal structure and legal principles. The

objective was to shed light whether or not the problems of those fellow alumni were caused not only

by old laws for example coming from Imperial times but by legal principles that were directly

created during the Hitler times in Germany. On a secondary basis, it was also scientifically sound

to investigate whether or not such severe restrictions like in Ger-many occur in other countries as

well and on what principles they are based. As an instrument of inquiry the historical method of

comparison as specified first by Bern-heim in 1889 and others afterwards has been used. Due to the

fact that all legal texts are documented online through the German Government very well and up to

date, they are without disambiguation regarding the sources, and so it was entirely possible to draw

up a less than desirable picture of how foreign educational credentials are treated in contemporary

Germany with the indirect help of German authorities. The achievement was not only an

explanation of how come that foreign credentials in Germany oftentimes cause such trouble for the

holder but the very reason behind a structure that actually hunts down perceived perpetrators in a

way unbecoming for any Western democratic state became obvious – the use of false legal

principles stemming in full from a totalitarian state in a totalitarian time.

Key Words: History of Restriction, Display, Foreign Educational Credential, Decrees,

laws.


22

I. Introduction

In these times of globalization, the world

moves closer together and this also applies to

the field of education and the use of foreign

educational credentials. Also, more and more

people inside and outside Germany wish to

pursue their studies and continuing education

together while having a professional career.

The establishment of UNESCO is for example

a major step in recognizing this change in

international education early on. Often studies

take place even outside the German jurisdiction

or we have the case where non-Germans

migrate to Germany in order to live and work

there and further their respective careers.

II. Background and Context

The oldest university in Europe, the University

of Bologna, was founded in 1088. In Bologna,

the interests of the Holy Roman Emperor of

German Nation were crucial for the

development of an effective university

education for lawyers. Competition to the

papacy as a secular power was dependent on

this in order not to depend on and to deal

exclusively with monks and clergy as civil

servants. Instead there was the aim to build up

a work force of non-clergy civil servants as

well within the empire.

The development of universities, especially

established for the Legal Education can be

considered a separation process from the

educational monopoly of the Church that lasted

from the end of Rome in 476 until then. The

contrary was for example the emergence of the

University of Paris. By centralizing education

in a single school of higher education it was

supposed to better monitor theologians and

therefore avoid heresies. Its name is related to

the times of Robert de Sorbon, who once

started teach-ing with 5 penniless students in

order to give them a theological education long

before the creation of the University of Paris.

The members of the Sorbonne, founded by

Papal Bull were under the Pope‘s rule and

ecclesiastical jurisdiction and not at all under

the legal authority of the French king.

The French king also confirmed this. The

jurisdiction was exercised by the Chancellor of

the University who was not a member of the

university, but acted as a representative of the

bishop. He also awarded the academic degrees.

The University of Paris and its degrees were

the templates for almost all Western uni-

versities, particularly the British, among them

prominently Oxford University and the German

universities. Thomas Aquinas studied e.g. in

Paris and entered the faculty 1248 as a teacher

of philosophy with such acclaim that he

received the titles of Doctor Universalis and


23

Doctor Angelicus. One can consider those titles

as the blue prints for later doctoral programs.

Originally, the doctorate was therefore a purely

religious matter and the first three doc-tors in

the sense of ecclesial dignity thus are the

Doctors of the Church, Ambrose, Jerome and

Augustine. Pope Gregory I, however, saw the

trend of times and quickly changed the law in

order to make the doctorate also the highest

degree for all faculties.

This historical course of events is ultimately the

reason why churches in the U.S. till today hand

out merely religiously motivated doctorates to

their bible scholars and dig-nitaries according

to the old tradition. Such doctoral church

honours, however, should not be considered as

exactly equal compared to that what modern

academic degrees are.

Like the doctorate, the bachelor degree is also

an academic degree since the 13th Cen-tury,

albeit the lowest ranking. It was also awarded

first at the University of Paris.

The middle level between Bachelor and Doctor

is the Master of Arts (Magister Ar-tium), which

has its precedence in antiquity and throughout

the Middle Ages as conclusion of the studies of

the seven liberal arts (Septem Artes Liberalis).

It means something like "Master of Arts" in a

wider sense and is therefore not limited to

artistic areas. Historical example of this degree

is in turn again from the University of Paris at

which the German mystic Meister Eckhart

(Master Eckhart in English) re-ceived his

master's degree in 1302, when he passed the

final exam in Paris. He then worked as a

teacher at the University of Paris, and at the

same time he became the first provincial of his

religious order in Germany.

III. Overview of the History of

Restrictions of Foreign Degrees

The first occurrence of a restriction in

Germany for the use of foreign degrees

occurred under the knocked out Weimar

Constitution in 1939 when ―Imperial

Chancellor‖ and then already de facto

totalitarian dictator Adolf Hitler promulgated a

new law governing the use of foreign degrees

in Germany. The law was aimed predominantly

at Jewish scholars who often had titles and

degrees from foreign Torah Colleges, but it

also applied to many opposition persons who

were not in line with the purification mania of

National Socialist ideologists. It is noteworthy

that in 1939 though formally in existence, the

democratic constitution of the Weimar

Republic had already been knocked out for six

years by the so-called Enabling Act of 1933.

This Act permitted the National Socialist

Regime to act at will outside the provisions of

the democratic constitution in order to

implement rules and regulations according to

their totalitarian will.


24

In regards to foreign education, the National

Socialists expressed their totalitarian views in a

law named the Academic Degree Act

(Akademisches Grad Gesetz). This was

promulgated in June 1939. In particular,

Section 1 of the law provided that:

German nationals who obtained an

academic degree from a foreign

university were required to seek

permission from the Imperial Minister

for Science, Education and Peoples

Education to display (display and use in

public) this degree.

The permission (for displaying the

degree) could be given in general in

regards to academic degrees from

certain foreign universities.

It is further stated (Section 2) that:

Among the requirements which are

mentioned in Section 1, the Imperial

Minister for Science, Education and

Peoples Education can withdraw a

previously given permission for

displaying a foreign academic degree

and in the case of a general permission

(Section 2:2) the Minister can order the

withdrawal (of the permission) in

individual cases.

In July 1939, a Decree was issued entitled:

―Regulation Implementing the Law on the use

of Academic Titles‖ (AkaGrGDV) and

Schwarz-Rot-Goldene Titelträger, page 32,

Schneekluth Publishers, 1971 . This regulation

referred to Section 8 of the Act and prescribed

that:

An application for authorization to

display a foreign degree (Section 2:1

and Section 3 of the Act) must be

presented directly to the Minister for

Science and Education. The application

shall contain the following:

matriculation certificate, study and audit

evidence or a certified copy of the

award certificate and a certified

translation into German, all must be

accompanied by: curriculum vitae.

As to be considered a temporary stay (in

Germany) in the sense of Section 3:2 of

the Act, the subject‘s stay may not

exceeds the period of three months.

Following the license (to

use/display/mention a foreign degree), a

certificate is is-sued to the applicant.

The aforementioned provisions shall not

apply in cases where the approval has

been given generally for displaying a

particular foreign university‘s degrees

according to Section 2:2 of the Act.

The withdrawal of a domestically

conferred university degree is to be

decided by a committee consisting of

the Rector of the University and the

Deans. At universities, where


25

structuring into faculties (departments)

is missing, the deans are replaced by

two lecturers of the university appointed

for a period of five years by the

Imperial Minister for Science and

Education.

The decision of the Committee shall be

effective upon delivery. Notification is

in accordance with the rules of civil

procedure regarding servicing one of its

motions.

The decision on a waiver of a

withdrawal (Section 4:4) is possible

after consulting the aforementioned

Committee according to Section 3:1 of

this Regulation.

The validity of this specific regulation ended

together with the Academic Degree Act in

2007, surviving its creator by 62 years.

However, we shall see (below) that exactly

those legal principles, which governed the

Academic Degree Act and especially the

‗Regulation Implementing the Law on the use

of Academic Titles‘ have been incorpo-rated in

the General Permission Decree from April

2000 and the Educational State Laws that

followed.

The following paragraphs set out what has

changed in recent years in the understanding of

the law nationally and the state laws of

Germany and what one has to look at the

various levels of regulations. However, this

dissertation will show that even the new laws in

Germany that lead on the surface to the transfer

of responsibility regarding presentation of

educational credentials towards the citizens, no

matter whether they are local or foreign, are

deeply tainted. I would have agreed with this

relatively reasonable approach by the

legislature till I noticed that there has taken

place a simple compilation of previous laws

and regulations which are based on quite

draconic law principles from a non-democratic

dictatorial time. Therefore, it should also be

mentioned that Germany is in an unprecedented

way the hardest jurisdiction when it comes to

the use of foreign credentials and that does in

my opinion not really go along with the

principle of alleged open-mindedness that the

Federal Republic of Germany wants to make

the world-public and her own populace believe

in.

This present dissertation here is the first of its

kind that has been made available for foreign

academicians and also workers who are

credential holders and intend to work and live

in the Federal Republic of Germany. As part of

the European Union it is only natural that

mobility of the work force of all of Europe and

the world will bring far more foreign credential

holders to Germany than in the past. As

German regulations are more than just strict

and hardly comparable to the regulations in


26

other regions of the world, this dissertation is

intended to spare the reader legal hassle,

embarrassment and possible court appearance

and fines in Germany. A book for the general

public is planned immediately afterwards.

1. Displaying and Using a

Degree - Then and Now:

Having noted the contents of the Law,

we need to consider a definition for

‗displaying, mentioning and using a degree‘

(einen Grad führen). To display, mention, use

(führen) a degree publicly in Germany means

the following:

Putting the academic title on a letter

head

Putting the academic title on a business

card

Putting the academic title on bell

Mentioning the title more than once

when talking to another individual, even

at different occasions

But, it is the opinion of this author that the

Germans had and still have: (1) a rigid idea of

what constitutes holding a degree; (2) no regard

for free speech in the matter. Further, I will

argue that the law (Section 4:3) opens the door

wide for individual dis-crimination in that an

individual can be forbidden to hold a foreign

academic degree even if the use of his specific

foreign alma mater was generally permitted in

Germany. The ‗lucky ones‘, whose foreign

degrees were recognized, had them

―nostrificated‖, i.e. converted into matching

German degree, a process only known to most

of us through the recognition of our driver‘s

licenses when we change the country of resi-

dence.

2.The Legal Position Today

The 1939 Act and the accompanying

Regulation was only revoked in 2007

(Bundesrecht aufgehoben durch Art. 9 Abs. 2 G

v. 23.11.2007. To understand this long delay

we need to refer to what happened to Germany

after the 8th of May 1945. Germany lost the

WW II and the winners had a problem as they

had enabled United Nations basic structures

and the Atlantic Charter before the end of the

war. According to the legal basics prescribed it

was not permitted to annex other country‘s

territory. Although, German territory was

annexed and mainly given to Poland (and half

of the East German Province East Prussia to the

Soviet Russians themselves) whose eastern

territory in turn was annexed by Soviet Russia

and incorporated mainly into Belo Russia).

Thus, to facilitate an on-going presence in

Germany, the Allies of WWII did simply not

―close down‖ the Weimar Republic (still

German Realm or German Empire) but

partitioned it into three parts and erected two

puppet states, one in the West, Federal

Republic of Germany, one in the Middle,


27

German Democratic Republic GDR (nowadays

historically erroneously called East Germany)

and a third part that was separated, emptied of

the prevalent German population by ethnic

cleansing and given to Poland and then Soviet

Russia as described above.

The West German ‗puppet state‘ FRG

prevailed over the Communist counterpart, the

German Democratic Republic‘ due to its

economic strength and in 1990 the GDR was

incorporated in the FRG with the blessing of all

former Allies of WW II. As the an-nexation

still cannot be legally finalized according to

current international law, as a shrewd legal

solution the Federal Republic of Germany

claimed to be identical with the German Realm,

in regards to the territory ―partially identical‖.

So we have the schizophrenic fact that on one

hand the FRG has dropped for herself all

claims of the lands that have been given to

Poland. On the other hand, due to the FRG‘s

claim to be the German Realm it must maintain

to accept a population that can show, for

example, a German family name or a German

grandfather or grandmother from the annexed

third part of Germany. We will encounter

effects of this internationally little known fact

later on within the educational laws of

contemporary Germany.

This annexation issue is also the reason why to

date a German constitution does not exist, but a

surrogate constitution called ―Basic Law‖. In

addition, it is the reason why there is no

formally correct peace treaty between Germany

and its former enemies but the so-called 2+4

Treaty that defines and approves certain

changes in the FRG‘s status and is presented

usually as the equivalent of a Peace Treaty.

This legal gymnastics is illustrated best as

something similar to the Operating System,

Windows, with all its contemporary layers of

modern user interfaces, under which we find

the old-fashioned DOS system. If we compare

the old laws of the German Realm with DOS,

and if we compare the contemporary laws of

the Federal Republic of Germany with modern

Versions of Windows Operating Systems, we

see what is expressed in Article 123 of the

Basic Law of the FRG.

Contemporary Germany has some underlying

laws of the German Realm and some

regulations developed by the former Allied

Occupiers (SHAEF) that are still in force. As

the Allies of WW II, mainly the US, brought

their ideas of laws into the Federal Republic of

Germany, it goes without saying that education

became an affair of the federal states in

Germany as well. And so the above-mentioned

Academic Degree Law from 1939

(Akademisches Grad Gesetz) survived its

creator Mr Hitler for five decades and was

incorporated into State law and Statutes. With

the advent of the European Union, however,

those old legal structures have led to friction


28

and an increasing number of legal actions have

put the FRG leadership under pressure to effect

change. For instance, EU Directive 89/48/EEC,

established in 1988, stipulates that there may

not be any form of discrimination against

degrees from membership states of the EU, so

in April 2000 Germany‘s Permanent

Conference of State Education Ministers,

promulgated the General Permission Decree

and all 16 states agreed to implement the

provisions till the dead line in 2005.

3. What do the 16 German State

Laws Say Today?

The General Permission Decree from

2000 and all State laws require that a foreign

degree must come from a university/college

that is recognized as such in the country of

origin. Furthermore, the conferred degree must

be recognized by the country of origin.

However, some state laws only require that the

university/college itself be recognized. In Table

1, those states marked with ―1‖ permit foreign

degree if the university/college is

governmentally recognized. Those marked ―2‖

require that not only the university/college but

also the degree itself must be recognized

explicitly by the government. Honorary degree

must always come from institutions that are

gov-ernmentally permitted to issue the

corresponding academic degree. Concerning

this, only a few states permit the use of an

abbreviated degree (marked with ―3‖), whereas

the hardline states require the degree written in

complete words (marked ―4‖). There is one

state (Mecklenburg) that discriminates openly

against transfer of academic credits from

private academies located in Germany and

elsewhere towards academic degrees at foreign

universities as practiced, for example, by the

University of Wales7 in the United Kingdom.

The state is indicated with ―5‖. Another state

(Hesse) indicates that the foreign degree must

be considered ‗an academic degree according

to European regulations‘; this remains obscure

as no EU law is mentioned, neither is there any

indication given that the regulation requires

observance of the educational laws of the 27

EU Member states. This ‗exceptionally

intelligent work‘ of German jurisprudence is

marked with ―6‖.


29

Table 1: Indications of the Requirements of

State Laws Relating to Foreign Degrees8

(Refer Text)

Baden-Württemberg 1 4

Bavaria 1 3

Berlin 2 4

Brandenburg 2 4 5

Bremen 1 3

Hamburg 1 4

Hesse 2 3 6

Mecklenburg-Pomerania 2 4

Lower Saxony 2 3

North Rhine Westphalia 1 3

Rhineland Palatine 2 4

Saarland 2 4

Saxony 2 3

Saxony-Anhalt 2 4

Schleswig-Holstein 2 4

Thuringia 1 4

4.The General Permission Regulation

Grundsätze für die Regelung der

Führung ausländischer Hochschulgrade im

Sinne einer gesetzlichen Allgemeingen

ehmigung durch einheitliche gesetzliche

Bestimmungen (Beschluss der

Kultusministerkonferenz vom 14.04.2000)

Basic principles for regulating the use / display

/mention of foreign higher educational degrees

in terms of a general statutory authorization by

uniform legislation (Resolution of the

Education Minister Conference of 14.04.2000)

1. Ein ausländischer Hochschulgrad, der

aufgrund eines nach dem Recht des

Herkunftslandes anerkannten Hochschul

abschlusses nach einem ordnungsgemäß durch

Prüfung abgeschlossenen Studium verliehen

worden ist, kann in der Form, in der er

verliehen wurde unter Angabe der verleihenden

Hochschule geführt werden. Dabei kann die

verliehene Form ggf. transliteriert und die im

Herkunftsland zugelassene oder nachweislich

allgemein übliche Abkürzung geführt und eine

wörtliche Übersetzung in Klammern

hinzugefügt werden. Eine Umwandlung in

einen entsprechenden deutschen Grad findet

mit Ausnahme zugunsten der nach dem

Bundesvertriebenengesetz Berechtigten nicht

statt. Entsprechendes gilt für staatliche und

kirchliche Grade.

1. A foreign higher education degree,

which was awarded according to the law of the

country of origin as a recognized academic

degree after due study concluded by

examination, can be used/ displayed/

mentioned in the wording in which it was

awarded while also mentioning the awarding

higher education institution. Furthermore, the

original wording of the award may be

transliterated (into Latin letters) and the permit-

ted acronym or the evidently generally used

abbreviation may be used/ displayed/


30

mentioned and a literal translation (into

German) may be added in brackets.

A conversion into a corresponding German

degree does not take place except for those

entitled according to the Federal Displaced

Persons Law (from the former Eastern

Provinces, which are now de facto parts of

Russia and Poland). The same applies to

governmental and ecclesiastical degrees.

2. Ein ausländischer Ehrengrad, der von einer

nach dem Recht des Herkunftslandes zur

Verleihung berechtigten Hochschule oder

anderen Stelle verliehen wurde, kann nach

Maßgabe der für die Verleihung geltenden

Rechtsvorschriften in der verliehenen Form

unter Angabe der verleihenden Stelle geführt

werden. Ausgeschlossen von der Führung sind

Ehrengrade, wenn die ausländische Institution

kein Recht zur Vergabe des entsprechenden

Grades im Sinne der Ziffer 1 besitzt.

2. A foreign honorary degree, awarded by an

authorized higher education institution or

another (authorized) body according to the law

of a country of origin can be used/ dis-played/

mentioned according to applicable law in the

wording in which it was awarded while also

mentioning the awarding body. Excluded from

(the General Permission of) being used/

displayed/ mentioned are honorary degrees if

the foreign institution did not have the right to

award the corresponding academic degree

according to Article 1.

3. Die Regelungen unter Ziffer 1 und Ziffer 2

geltend entsprechend für Hochschultitel und

Hochschultätigkeitsbezeichnungen.

3. The regulations under paragraph 1 and

paragraph 2 shall apply accordingly for aca-

demic titles and academic designations.

4. Soweit Vereinbarungen und Abkommen der

Bundesrepublik Deutschland mit anderen

Staaten über Gleichwertigkeiten im

Hochschulbereich und Vereinbarungen der

Länder in der Bundesrepublik Deutschland die

Inhaber ausländischer Grade abweichend von

den Ziffern 1 bis 3 begünstigen, gehen diese

Regelungen nach Maßgabe landesrechtlicher

Umsetzung vor.

4. Where agreements and treaties of the Federal

Republic of Germany and agreements of the

(federal) states with other countries regarding

equivalences in higher education, favour the

holders of foreign degrees deviating to

paragraphs 1 to 3, these regulations prevail the

implementation of state law.

5. Eine von den Ziffern 1 bis 3 abweichende

Grad- und Titelführung ist untersagt. Durch

Titelkauf erworbene Grade dürfen nicht geführt

werden. Wer einen Grad führt, hat auf


31

Verlangen einer Ordnungsbehörde die

Berechtigung hierzu urkundlich nachzuweisen.

5. Using/ displaying/ mentioning degrees and

titles differently as prescribed in paragraphs 1

to 3 is not permitted. Titles acquired through

title peddling may not be used/ displayed/

mentioned. A person who uses/ displays/

mentions a degree has to prove the justification

for this by certificate at the request of a

regulatory authority. Translation by George

Reiff, 2012.

Law regarding the Universities of the

State of North Rhine-Westphalia, version of the

University Liberty Law from 31.10.2006, the

law came into power on 1st of January 2007

§ 69 Verleihung und Führung von Graden

Awarding and Displaying/using/mentioning

degrees:

(1) Grade dürfen nur verliehen werden, wenn

innerstaatliche Bestimmungen es vorsehen.

Bezeichnungen, die Graden zum Verwechseln

ähnlich sind, dürfen nicht vergeben werden.

(1) Degrees may only be conferred if interstate

regulations provide for this. Denominations

that can be confused with degrees cannot be

awarded.

(2) Von einer staatlichen oder staatlich

anerkannten Hochschule in Deutschland oder in

einem anderen Mitgliedstaat der Europäischen

Union einschließlich der Europäischen

Hochschulen in Florenz und Brügge sowie der

Päpstlichen Hochschulen in Rom verliehene

Hochschulgrade sowie entsprechende staatliche

Grade können im Geltungsbereich dieses

Gesetzes in der verliehenen Form geführt

werden. Ein sonstiger ausländischer

Hochschulgrad, der auf Grund einer Prüfung im

Anschluss an ein tatsächlich absolviertes

Studium von einer nach dem Recht des

Herkunftslandes anerkannten Hochschule

ordnungsgemäß verliehen wurde, kann in der

verliehenen Form unter Angabe der

verleihenden Institution geführt werden. Die

verliehene Form des Grades kann bei fremden

Schriftarten in die lateinische Schrift

übertragen werden; ferner kann die im

Herkunftsland zugelassene oder dort

nachweislich allgemein übliche Abkürzung

geführt sowie eine wörtliche Übersetzung in

Klammern hinzugefügt werden. Die Sätze 2

und 3 gelten für ausländische staatliche und

kirchliche Hochschulgrade entsprechend. Eine

Umwandlung in einen entsprechenden

inländischen Grad ist ausgeschlossen.

2 Degrees awarded by governmental or

governmentally recognized higher education

institutions in Germany or another member

state of the European Union inclusive the

European University in Florence and Bruges

and also the Papal University in Rome and


32

corresponding governmental degrees can be

used/displayed/ mentioned in the wording they

were awarded within reach of this law. Another

foreign higher education degree that was duly

awarded based on an examination following a

real study at a higher education institution can

be used/mentioned/displayed in the conferred

wording while mentioning the awarding

institution. The original wording of the award

may be transliterated into Latin script and the

commonly used or officially permitted acronym

in the country of origin can be displayed and a

literal translation (into German) can be added

in brackets. The Sentences 2 and 3 apply for

foreign governmental and ecclesiastical higher

education degrees accordingly. A conversion

into a domestic degree is not possible.

(3) Ein ausländischer Ehrengrad, der von einer

nach dem Recht des Herkunftslandes zur

Verleihung berechtigten Hochschule oder einer

anderen zur Verleihung berechtigten Stelle

verliehen wurde, kann nach Maßgabe der für

die Verleihung geltenden Rechtsvorschriften in

der verliehenen Form unter Angabe der

verleihenden Stelle geführt werden. Absatz 2

Sätze 3 bis 5 gelten entsprechend.

3. A foreign honorary degree, awarded by an

authorized higher education institution or

another authorized body according to the law of

a country of origin can be used /displayed

/mentioned, according to applicable regulations

in regard to the award, in the wording it was

awarded while also mentioning the awarding

authority. Paragraph 2, Sentence 3 to 5 apply

accordingly.

(4) Die Absätze 2 und 3 gelten für die Führung

von Hochschultiteln und Hochschultätigkeits-

bezeichnungen entsprechend.

4. Paragraphs 2 and 3 apply accordingly to the

use/display/mention of university titles and

university denominations.

(5) Soweit Vereinbarungen und Abkommen der

Bundesrepublik Deutschland mit anderen

Staaten über Gleichwertigkeiten im

Hochschulbereich und Vereinbarungen der

Länder der Bundesrepublik Deutschland die

Betroffenen gegenüber den Absätzen 2 bis 4

begünstigen, gehen diese Regelungen vor.

5. Where agreements and treaties of the Federal

Republic of Germany with other countries

regarding equivalences in higher education

(equivalence treaties), and agreements of the

states (the Länder) in the Federal Republic of

Germany favour the persons in question with

foreign degrees compared with paragraphs 2 to

4, these regulations (agreements and treaties)

prevail.


33

(6) Das Ministerium kann in begründeten

Fällen durch Rechtsverordnung für bestimmte

Grade, Institutionen und Personengruppen

Ausnahmen regeln, die Betroffene gegenüber

den Absätzen 2 bis 5 begünstigen. Das

Ministerium kann ferner durch

Rechtsverordnung für bestimmte Grade eine

einheitliche Schreibweise in lateinischer Schrift

sowie einheitliche deutsche Übersetzungen

vorgeben.

(6) The Ministry may regulate through decree

exceptions in reasonable cases for institutions

and groups that favour those persons in

question compared with Paragraphs 2 to 5.

Moreover, the Ministry can regulate through

decree a unified way of display in Latin script

and a unified German translation.

(7) Von den Absätzen 2 bis 6 abweichende

Grade und Titel sowie durch Titelkauf

erworbene Grade dürfen nicht geführt werden.

Wer einen Grad führt, hat auf Verlangen der

zuständigen Behörden die Berechtigung hierzu

urkundlich nachzuweisen. Eine von den

Absätzen 2 bis 6 abweichende Grad- oder

Titelführung kann vom Ministerium oder einer

von ihm beauftragten Behörde untersagt

werden. Wer vorsätzlich gegen Satz 1 oder eine

Anordnung nach Satz 2 oder 3 verstößt, handelt

ordnungswidrig. Ordnungswidrig handelt

ferner, wer vorsätzlich Urkunden ausstellt oder

beschafft, in denen ein nach den Absätzen 1 bis

6 sowie Satz 1 nicht führbarer Grad verliehen

wird. Die Ordnungswidrigkeit kann mit einer

Geldbuße bis zu 500.000 Euro geahndet

werden. Zuständige Verwaltungsbehörde für

die Verfolgung und Ahndung von

Ordnungswidrigkeiten nach Satz 4 und 5 ist das

Ministerium oder eine von ihm beauftragte

Behörde.

(7) Displaying/using/mentioning degrees and

titles differently as mentioned in the Paragraphs

2 to 6 is not permitted and purchased degrees

are not permitted for use/ display/ mention. A

person using/displaying/mentioning a degree or

university title has to prove eligibility for this

through (producing the) certificate upon request

of the authority in charge. Usage /display

/mention diverging from Paragraphs 2-6 of a

degree or title can be forbidden by the ministry

or by an authority put in charge. A person

acting premeditated against Sentence 1 or a

decree according to sentences 2 or 3, is guilty

of a misdemeanor. A person premeditatedly

issuing or procuring certificates in which a

degree is awarded that cannot be

used/displayed/mentioned according to

Paragraphs 1 to 6 and Sentence 1 is guilty of a

misdemeanor. The misdemeanor can lead to a

fine of 500,000 EUR. The relevant

administrative authority according to sentences

4 and 5 is the Ministry, or a department put in

charge by it.


34

(8) Die Landesregierung kann an Personen, die

außerhalb der Hochschule wissenschaftliche,

künstlerische oder kulturelle Leistungen

erbracht haben, die die Anforderungen nach §

36 Abs. 1 Nr. 3 und 4, § 36 Abs. 1 Nr. 3 und 5,

§ 36 Abs.2 oder § 36 Abs. 3 erfüllen, den Titel

einer Professorin oder eines Professors

verleihen.

8. The State Government can confer

professorships onto persons that rendered

outside the university scientific, artistic or

cultural efforts satisfying the requirements

according to Paragraph 36, Sentence 1, Number

3 and 5, Paragraph 36, Sentence 2 or Paragraph

36, Sentence 3.

Verordnungüber die Führung von

akademischen GradenVom 31. März 2008 (Fn

1)Aufgrund des § 69 Abs. 6 des Gesetzes über

die Hochschulen des Landes Nordrhein-

Westfalen (Hochschulgesetz – HG) vom 31.

Oktober 2006 (GV. NRW. S. 474), zuletzt

geändert durch Artikel 2 des Gesetzes zur

Neuregelung des Kunsthochschulrechts vom

13. März 2008 (GV. NRW. S. 195), wird

verordnet:

(1) Inhaberinnen und Inhaber von

Doktorgraden, die von einer staatlichen oder

staatlich anerkannten Hochschule in

Deutschland oder in einem anderen

Mitgliedstaat der Europäischen Union

einschließlich der Europäischen Hochschulen

in Florenz und Brügge sowie der Päpstlichen

Hochschulen in Rom verliehen und in einem

wissenschaftlichen Promotionsverfahren

erworben sind, können anstelle der im

Herkunftsland verliehenen Bezeichnung die

Bezeichnung „Dr.― ohne fachlichen Zusatz und

ohne Herkunftsbezeichnung führen.

2Men and women owning a doctorate obtained

from a governmental or governmentally

recognized tertiary institution in Germany or

any other member country of the EU including

the European Universities in Florence and the

Papal University in Rome, and obtained

through research process, can use ―Dr.‖ without

mentioning the field of expertise and the

awarding institution instead of the awarded

denomination of the degree of the country of

origin.

(2) Absatz 1 gilt nicht für Grade, die die

Bezeichnung „Doktor― enthalten, jedoch ohne

Promotionsstudien und ohne Promotionsver

fahren vergeben wurden („Berufsdoktorate―),

oder die nach den rechtlichen Regelungen des

Herkunftslandes nicht der dritten Ebene der

Bologna-Klassifikation der Studienabschlüsse

zugeordnet sind („kleine Doktorgrade―).

Sentence 1 does not apply to degrees which

contain the denomination doctor but were

awarded without research process and are not

allocated to the third level of the Bologna


35

Classification for degrees (―small doctor

degrees‖; properly: professional doctorates).

(1) Inhaberinnen und Inhaber der nachstehend

genannten russischen Doktorgrade können

anstelle der im Herkunftsland verliehenen

Bezeichnung die Bezeichnung „Dr.― ohne

fachlichen Zusatz, jedoch mit Angabe der

verleihenden Einrichtung, führen:

kandidat biologiceskich nauk

kandidat chimiceskich nauk

kandidat farmacevticeskich nauk

kandidat filologiceskich nauk

kandidat fiziko-matematiceskich nauk

kandidat geograficeskich nauk

kandidat geologo-mineralogiceskich nauk

kandidat iskusstvovedenija

kandidat medicinskich nauk

kandidat nauk (architektura)

kandidat psichologiceskich nauk

kandidat selskochozjajstvennych nauk

kandidat techniceskich nauk

kandidat veterinarnych nauk.

2/Fn2 Owners of Russian doctor degree as

listed below, can use the acronym „Dr.―

without mentioning the field of expertise while

mentioning the awarding institution instead of

using the generally evidently permitted

acronym of the country of origin:

kandidat biologiceskich nauk

kandidat chimiceskich nauk

kandidat farmacevticeskich nauk

kandidat filologiceskich nauk

kandidat fiziko-matematiceskich nauk

kandidat geograficeskich nauk

kandidat geologo-mineralogiceskich nauk

kandidat iskusstvovedenija

kandidat medicinskich nauk

kandidat nauk (architektura)

kandidat psichologiceskich pauk

kandidat selskochozjajstvennych nauk

kandidat techniceskich nauk

kandidat veterinarnych nauk.

(2) Inhaberinnen und Inhaber des in den

Vereinigten Staaten von Amerika erworbenen

Grades „Doctor of Philosophy― – abgekürzt

„Ph.D.― –, können, sofern die verleihende

Einrichtung von der Carnegie Foundation for

the Advancement of Teaching als „Research

University (high research activity)― oder als

„Research University (very high research

activity)― klassifiziert ist (Carnegie-Liste), die

Abkürzung „Dr.― ohne weitere Zusätze führen.

2Owners who obtained the US degree ―Doctor

of Philosophy‖- acronym: PhD - can use the

acronym „Dr.― without mentioning anything

else if the awarding institution has been

classified by the Carnegie Foundation for the

Advancement of Teaching (Carnegie List) as

Research University (high research activity) or

Research University ( very high research

activity).

(3) Inhaber von folgenden Doktorgraden


36

1. Australien: „Doctor of …― (mit jeweils

unterschiedlicher Abkürzung)

2. Israel: „Doctor of …― (mit jeweils

unterschiedlicher Abkürzung)

3. Japan: „Doctor of …― (hakushi …)

4. Kanada: „Doctor of Philosophy― (Abkürzung

„Ph.D.―)

können anstelle der im Herkunftsland

zugelassenen oder nachweislich allgemein

üblichen Abkürzungen die Abkürzung „Dr.―

jeweils ohne fachlichen Zusatz und

Herkunftsbezeichnung führen.

(3) Owners of the following doctor degrees:

1. Australia: „Doctor of …― (with respectively

different major)

2. Israel: „Doctor of …― (with respectively

different major)

3. Japan: „Doctor of …― (hakushi …)

4. Canada: „Doctor of Philosophy― (acronym

„Ph.D.―)

can use ―Dr.‖ without mentioning the field of

expertise and the awarding institution instead

of the awarded denomination of the degree of

the country of origin.

(4) Die gleichzeitige Führung mehrerer

Bezeichnungen aufgrund eines Grades ist nicht

zulässig. 4Using/displaying/mentioning

multiple denominations on the basis of one

degree is not permitted.

Diese Rechtsverordnung tritt am Tage nach

ihrer Veröffentlichung in Kraft. Zum selben

Zeitpunkt tritt die Verordnung über die

Führung ausländischer Doktorgrade vom 9.

Dezember 2005 (GV. NRW. 2006 S. 4) außer

Kraft.

Der Minister für Innovation, Wissenschaft,

Forschung und Technologie des Landes

Nordrhein-Westfalen

This decree becomes valid at the day after its

promulgation. At the same time the decree

regarding the display/use/mention of foreign

doctor degrees from 9th of December 2005

(North Rhine Westphalia Gazette 2006 Page 4)

is lifted.

The Minister

For Innovation, Science, Research and

Technology of the State of Northrhine-

Westphalia

How to legally use and display a foreign degree

in North Rhine Westphalia that are non-EU and

non-favoured?

According to the state law, degrees from

English influenced countries have to be held as

follows:

John Doe, MBA (Doetown University)

John Doe, PhD (Doetown University)

And as follows, if they come from a Latin

influenced country like for example former

French, Portuguese or Spanish colonies:


37

Dr. (Universidad de Doetown) John Doe

A special exception is certainly a female holder

of a Spanish doctorate as she is forced to hold

the degree as Dra. for doctora.

The German Constitution and Free Speech

The German Constitution and Free Speech

This is a difficult question because, as stated

above, Germany does not have a constitution.

Since 1949, the Federal Republic of Germany

has operated a surrogate constitution called

Grundgesetz, i.e. ―Basic Law‖. This is still the

case in 2010 despite that fact that Germany was

supposedly given independence from Allied

rule in 199113. Since that time, German

politicians have failed to introduce a real

constitution within a real German republic.

But even the surrogate constitution has a free

speech provision, which in Germany is referred

to as ―Meinungsfreiheit‖ (freedom of

expression) in Article 5, Section 114 of the

Basic Law. Two statements under this Article

are of special interest here:

(1) Every person shall have the right freely to

express and disseminate his opinions in speech,

writing, and pictures and to inform himself

without hindrance from generally accessible

sources. Freedom of the press and freedom of

reporting by means of broadcasts and films

shall be guaranteed. There shall be no

censorship.

(2) Art and scholarship, research, and teaching

shall be free. The freedom of teaching shall not

release any person from allegiance to the

constitution.

If ―censorship‖ is unacceptable, how is it that a

German citizen is not permitted to mention a

qualification they have obtained? Further,

where is academic freedom in scholarship,

research and teaching when a teacher is

prevented from writing his academic degree on

a blackboard?

The Universal Declaration of Human Rights

from 1948 declared in the preamble that:

―Whereas disregard and contempt for human

rights have resulted in barbarous acts which

have outraged the conscience of mankind, (we

look for) the advent of a world in which human

beings shall enjoy freedom of speech and belief

and freedom from fear and want are proclaimed

as the highest aspiration of the common

people‖.

Similarly, Article 10 of the European

Convention on Human Rights16 makes clear

that:

―This right shall include freedom to hold

opinions and to receive and impart information

and ideas without interference by public

authority‖.


38

These provisions have been re-emphasized

once again in the Treaty of Lisbon of 2009 as

follows:

Article 6 (ex Article 6 TEU)

1. The Union recognises the rights, freedoms

and principles set out in the Charter of

Fundamental Rights of the European Union of

7 December 2000, as adapted at Strasbourg, on

12 December 2007, which shall have the same

legal value as the Treaties.

The provisions of the Charter shall not extend

in any way the competences of the Union as

defined in the Treaties.

The rights, freedoms and principles in the

Charter shall be interpreted in accordance with

the general provisions in Title VII of the

Charter governing its interpretation and

application and with due regard to the

explanations referred to in the Charter, that set

out the sources of those provisions.

2. The Union shall accede to the European

Convention for the Protection of Human Rights

and Fundamental Freedoms. Such accession

shall not affect the Union's competences as

defined in the Treaties.

3. Fundamental rights, as guaranteed by the

European Convention for the Protection of

Human Rights and Fundamental Freedoms and

as they result from the constitutional traditions

common to the Member States, shall constitute

general principles of the Union's law.

These directives appear to be in opposition to

German regulations governing the citing of

qualifications not approved by the State. Thus

far, the German government has operated

contrary to such international and EU

requirements with complete impunity.

IV. Conclusion

The sixteen Educational State Laws and the

General Permission Decree from 2000 of the

Federal Republic of Germany have nearly the

same provisions as the Academic Degree Act of

1939 from the German Realm. It is evident that

the Academic Degree Act and its

accompanying Regulation were fully

incorporated and very actively employed in the

Federal Republic of Germany from the

beginning of its conception in 1949, and that it

only reluctantly ushered in the General

Permission Decree and the State Education

Laws in the years 2000 to 2005. It is important

to remember that:

The provisions of the Academic Degree

Act were introduced by a deformed

Weimar Republic which for six years

had been changed to a totalitarian by the

Enabling Act of 1933. The provisions of

the Act were made by a totalitarian

system that was strongly biased against

anything and everything ―foreign‖


39

The most important implication in the

current State Laws is that they neither

ushered out, nor eased, nor abolished

the discriminatory provisions within the

Academic Degree Act. These survive

today within the provisions of the

General Permission Decree and all 16

State Laws. The only change was a shift

from the need for individuals intending

to use a foreign degree in the Federal

Republic of Germany to get permission

to so do from a government commission

in favour of placing full legal

responsibility on the individual to not

use a degree openly that did not have

official approval.

V. In short

Provisions like the withdrawal of degrees for

persons being ―unsuitable‖ are to be found in

the 1939 decree AkaGrGDVVO as much as in

half of the Higher Education state laws of today

A provision for a general permission of certain

degrees can be found in the 1939 decree

AkaGrGDVVO inasmuch as in all current state

laws Where the 1939 decree AkaGrGDVVO

prescribes a kind of license to be obtained, all

Higher Education state laws of Germany

―offer‖ a license-like document where they will

state a recommendation how to display a

foreign degree legally. Also, the same function

is taken on by the so called ANABIN list

(www.anabin.de) where so called

―recommendations‖ as of acronyms and wanted

and unwanted universities in Germany are

listed. These legal circumventions of a direct

licensure have been created in order to avoid

court suits through the population and the EU.

Especially the formula ―wenn sie nach dem

Recht ihres Heimatstaates zur Führung des

akademischen Grades befugt sind = according

to the laws of the country of origin permitted to

display‖ in regards to a general permission to

display a foreign degree, applies already in § 3

of the 1939 decree AkaGrGDVVO in as much

as it does in all Seeming favouritism for

Degrees from the European Union results

directly from the Lisbon Convention of 1997: It

is noteworthy that it was only ratified in

Germany in November 2007 – 10 years after

the fact! It is also an indicator that the German

authorities are fully aware of their

undemocratic laws regarding foreign

educational credentials and change them only

minutely upon application of outside pressure.

Reference to current international law shows

that the Educational Laws prevalent in the

Federal Republic of Germany (FRG) break the

provisions of the Universal Declaration of

Human Rights and that this practice has been

blatantly pursued from the foundation of the

Federal Republic of Germany over six decades.


40

Further, the FRG has not adhered to its own

proclamation of freedom of speech (Basic Law,

Article 5, Sections 1 and 3) in prosecuting

people who have mentioned more than once

that they have a foreign degree and fining them

€2 000 to €20,000 and recording a criminal

conviction according to Criminal Code §132a

(Unauthorized Use of Official Titles)!

Germany is now operating within the

supranational EU structure and is more or less a

Federal State within the European Union EU.

How is it possible that the FRG may surmount

European Law Provisions like Article 10 of the

European Convention on Human Rights, which

clearly states that Freedom of Expression is

protected with impunity? How is it that the

FRG is still bringing its citizens before court

for a speech crime, when they were simply

wishing to inform their fellow citizens and

business partners of their academic credentials?

VII. Evaluation

What once set out to be a paper about some

legal abnormities in Germany turned out to

become the stuff from which dissertations are

made. Little did I know at the beginning of my

investigation into the German laws regarding

foreign educational credentials that the laws

themselves would reveal a picture of a society

and country that is absolutely different

compared with what is transported to the

outside world. Germany is fostering foreign

immigration for over 5 decades now but the

people are still too cowed to stand up for

themselves and demand equal recognition of

the credentials. I have made clear by displaying

and translating all 16 state laws, the General

Permission Decree from 2000 and the

Academic Degree Laws and Decrees from

1939 that laws have changed little and that

under the guise of democracy in the field of

foreign educational credentials there is still bias

that stems from another time and another

political system – the letter nobody wishes to

experience anymore in our times. Giving

evidence with contemporary sources that are

unanimous plentiful and governmental is

certainly a streak of luck and made the use of

the historical method more than easy in this

case.


41

References:

1. http://www.loc.gov/teachers/, (October

2011)

2. http://avalon.law.yale.edu/wwii/atlantic.a

sp (September 2011)

3. http://www.britannica.com/EBchecked/t

opic/554821/Robert-de-Sorbon,

(September 2011)

4. http://historymedren.about.com/od/aentri

es/a/11_aquinas.htm, (September 2011)

5. http://plato.stanford.edu/entries/meister-

eckhart/, (October 2011)

6. http://www.dhm.de/lemo/html/dokument

e/ermaechtigungsgesetz/index.html,

(September 2011)

7. http://www.buzer.de/gesetz/1582/index.h

tm, (September 2011)

8. http://www.buzer.de/gesetz/220/index.ht

m, (September 2011)

9. http://europa.eu/legislation_summaries/o

ther/c11022b_en.htm, 2011

10. http://www.kmk.org/fileadmin/veroeffent

lichungen_beschluesse/2000/2000_04_1

4-Fuehrung-ausl-HS-Grade.pdf,

September 2011

11. http://www.mk.niedersachsen.de/downlo

ad/5812, February 2012

12. http://www.schure.de/22210/akgradvo.ht

m, February 2012

13. http://www.wissenschaft.nrw.de/objekt-

pool/download_dateien/hochschulen_un

d_forschung/flyer_Juli_2011.pdf,

February 2012

14. http://www.wissenschaft.nrw.de/objekt-

pool/download_dateien/hochschulen_un

d_forschung/doktorverordnung20081.pd

f, March 2012

15. http://www.landesrecht.sachsen-

anhalt.de/jportal/;jsessionid=0DC7A77A

B3A10BF8CD1BE81E12EAC1FA.jpj4?

quelle=jlink&query=HSchulG+ST&psm

l=bssahprod.psml&max=true&aiz=true#j

lr-HSchulGST2010pP19, May 2012

16. http://www.buzer.de/gesetz/220/index.ht

m, October 2012

17. http://www.kmk.org/fileadmin/pdf/ZAB/

Konventionen_und_Uebereinkommen_v

on_Europarat_UNESCO/Lissabonkonve

ntion.pdf, October 2012

18. http://www.globeinvestor.com/servlet/Ar

ticleNews/story/BWIRE/20041221/2004

1221005728

http://www.sueddeutsche.de/karriere/prozess-

um-umstrittenen-leichenpraeparator-von-

hagens-durfte-professorentitel-fuehren-

1.1402563

http://www.loc.gov/teachers/

http://avalon.law.yale.edu/wwii/atlantic.asp

http://avalon.law.yale.edu/wwii/atlantic.asp

http://www.britannica.com/EBchecked/topic/554821/Robert-de-Sorbon

http://www.britannica.com/EBchecked/topic/554821/Robert-de-Sorbon

http://historymedren.about.com/od/aentries/a/11_aquinas.htm

http://historymedren.about.com/od/aentries/a/11_aquinas.htm

http://plato.stanford.edu/entries/meister-eckhart/

http://plato.stanford.edu/entries/meister-eckhart/

http://www.dhm.de/lemo/html/dokumente/ermaechtigungsgesetz/index.html

http://www.dhm.de/lemo/html/dokumente/ermaechtigungsgesetz/index.html

http://www.buzer.de/gesetz/1582/index.htm




http://europa.eu/legislation_summaries/other/c11022b_en.htm

http://europa.eu/legislation_summaries/other/c11022b_en.htm

http://www.kmk.org/fileadmin/veroeffentlichungen_beschluesse/2000/2000_04_14-Fuehrung-ausl-HS-Grade.pdf



http://www.mk.niedersachsen.de/download/5812

http://www.mk.niedersachsen.de/download/5812

http://www.schure.de/22210/akgradvo.htm

http://www.schure.de/22210/akgradvo.htm

http://www.wissenschaft.nrw.de/objekt-pool/download_dateien/hochschulen_und_forschung/flyer_Juli_2011.pdf



http://www.wissenschaft.nrw.de/objekt-pool/download_dateien/hochschulen_und_forschung/doktorverordnung20081.pdf




http://www.landesrecht.sachsen-anhalt.de/jportal/;jsessionid=0DC7A77AB3A10BF8CD1BE81E12EAC1FA.jpj4?quelle=jlink&query=HSchulG+ST&psml=bssahprod.psml&max=true&aiz=true#jlr-HSchulGST2010pP19








http://www.kmk.org/fileadmin/pdf/ZAB/Konventionen_und_Uebereinkommen_von_Europarat_UNESCO/Lissabonkonvention.pdf




http://www.globeinvestor.com/servlet/ArticleNews/story/BWIRE/20041221/20041221005728



http://www.sueddeutsche.de/karriere/prozess-um-umstrittenen-leichenpraeparator-von-hagens-durfte-professorentitel-fuehren-1.1402563





42

*Dr George Reiff is Professor for History at

EIILM University in India.

He holds a Master degree from Universidad

Empresarial and a PhD from Bundelkhand

University. As a former Ambassador of the

Parlement Mondial, George has travelled

widely to promote peace and understanding.

He now serves as a Representative of the

Bunyoro Kingdom, a constitutionally

empowered Kingdom in Uganda and also as

Chapter Commander for Thailand of the

Order of the Knights of Rizal of the

Philippines.


43

Glocal Operation Management

Step Ahead for Effective Supply Chain Managers

Dr. Shakti Prasad Mohanty and Dr. Sanjay Kumar Rout*

Many people involved in modern

organizations agree that globalization has a

significant impact on the way we do business.

Particularly during the past few decades, the

concept of a global marketplace or global

economy has influenced both industry and

individual consumers alike. Today we find

numerous global multi-brand as well as single-

brand in our vicinity. In this age of

Globalization we hear about the concept of

GLOCAL OPERATION; Go-Global Be Local.

Some of the leading brands have initiated &

implemented this very concept. This concept

implies, Make your Product available

throughout the Globe as a Local Market

produce. For example: Volvo, Toyota, Pepsi,

McDonald‘s, Subway, Addidas, and Nike etc.

In this Glocal Operation, the most important

role is essayed by Effective Supply Chain. By

effective supply chain, we mean the supply

chain process be economical & qualitative.

Overall, glocalisation has created a more

competitive and connected economic

environment, offering both opportunities and

threats to organizations. The distance and time

between different countries, consumers and

businesses has effectively been compressed by

through new technology, communication

channels, more efficient transportation and

logistics and greater networking between

organizations.

Businesses now have more options than

they have had in the past in regards to where

and how they produce their products, which

markets and consumers they should target and

how they should communicate with both their

suppliers and buyers. Organizations

increasingly find that they must rely on

effective supply chains, or networks, to

compete in the global market and networked

economy. In Peter Drucker's (1998) new

management paradigms, this concept of

business relationships extends beyond

traditional enterprise boundaries and seeks to

organize entire business processes throughout a

value chain of multiple companies.

Glocalisation presents many challenges to

organizations in regards to the supply chain.

The global marketplace has made supply and

demand more volatile and hard to forecast as

there is a greater reliance on different

organizations spread over great distances. This


44

can make it difficult for managers to maintain

an adequate level of control over their

operations. There is also increased competition

from low cost (and often lower quality)

products from overseas markets. In recent

decades, globalization, outsourcing, and

information technology have enabled many

organizations, such as Dell and Hewlett

Packard, to successfully operate collaborative

supply networks in which each specialized

business partner focuses on only a few key

strategic activities. This inter-organizational

supply network can be acknowledged as a new

form of organization. However, with the

complicated interactions among the players, the

network structure fits neither "market" nor

"hierarchy" categories. It is not clear what kind

of performance impacts different supply

network structures could have on firms, and

little is known about the coordination

conditions and trade-offs that may exist among

the players.

In the 21st century, changes in the business

environment have contributed to the

development of supply chain networks. First, as

an outcome of globalization and the

proliferation of multinational companies, joint

ventures, strategic alliances, and business

partnerships, significant success factors were

identified, complementing the earlier "just-in-

time", lean manufacturing, and agile

manufacturing practices. Second, technological

changes, particularly the dramatic fall in

communication costs (a significant component

of transaction costs), have led to changes in

coordination among the members of the supply

chain network. In general, such a structure can

be defined as "a group of semi-independent

organizations, each with their capabilities,

which collaborate in ever-changing

constellations to serve one or more markets in

order to achieve some business goal specific to

that collaboration". Global supply chains pose

challenges regarding both quantity and value.

Supply and value chain trends include:

Globalization, Increased cross-border sourcing,

Collaboration for parts of value chain with low-

cost providers, Shared service centers for

logistical and administrative functions,

Increasingly global operations, which require

increasingly global coordination and planning

to achieve global optimums & Complex

problems involve also midsized companies to

an increasing degree.

These trends have many benefits for

manufacturers because they make possible

larger lot sizes, lower taxes, and better

environments (e.g., culture, infrastructure,

special tax zones, or sophisticated OEM-

Original Equipment Manufacture) for their

products. There are many additional challenges

when the scope of supply chains is global. This

is because with a supply chain of a larger

scope, the lead time is much longer, and

https://en.wikipedia.org/wiki/Information_technology

https://en.wikipedia.org/wiki/Dell

https://en.wikipedia.org/wiki/Hewlett_Packard

https://en.wikipedia.org/wiki/Hewlett_Packard

https://en.wikipedia.org/wiki/Just_In_Time_(business)

https://en.wikipedia.org/wiki/Just_In_Time_(business)

https://en.wikipedia.org/wiki/Lean_manufacturing

https://en.wikipedia.org/wiki/Agile_manufacturing

https://en.wikipedia.org/wiki/Agile_manufacturing


45

because there are more issues involved, such as

multiple currencies, policies, and laws. The

consequent problems include different

currencies and valuations in different countries,

different tax laws, different trading protocols,

and lack of transparency of cost and profit.

Essentially, globalization has made the supply

chains for many products more complex and

challenging to manage. In the past, one

company supplied the raw materials, the

manufacturer produced the product, a logistics

business managed the storage and

transportation and the retailer would sell the

product. However, current supply chains often

incorporate multiple suppliers, different

manufacturers to produce each component, an

assembler to put the components together, a

transport company, storage provider and

multiple retailers operating all over a country or

even the world. This longer supply chain places

even greater importance on effective supply

chain management.

*Shakti Prasad Mohanty,

Functional Consultant (International

Trade & SCM), Visiting Faculty

*Sanjay Kumar Rout,

Functional Consultant & Researcher

(International Business, HRM &

Business Innovation)

Email= [email protected] ( facebook

, twitter) [email protected]

( linkedin ) skype id = sanjaykrout Ph =

+91-8270657298


46

The Developing Concept Of The Professional

The nature and future of professionalism, and its implications for academics,

executives and public administrators

Dr. Daniel Valentine*

This article is based in part on presentations made by the author at conferences of the Institute of

Management Consultants held in Lagos and Port Harcourt in May 2013.

What do we mean by professionalism? It is a

question to which much hard thinking and

careful writing are being devoted in our time.

This essay examines the development of

modern thinking about professionalism,

particularly as it applies to those working

within public administration. Never have

professionals been under such pressure as

today, as the demands on public services are

raised in all territories due to increased

scrutiny, calls for improved efficiency and

inter-departmental working, and the growth of

public cynicism about government services.

―Profession‖ in the full sense requires a single

professional body that regulates entry and

conduct, which limits the number of

professions to just a few such as medics,

lawyers and architects. The term ―profession‖

is in common usage much wider than this

(Farmer, 1995) and the concept of

―professional conduct‖ wider still. It is the

wider concept of ―profession‖ that we will

examine in this article. What are these

standards of professional attitude and conduct

that the holder of any job could abide by? A

few examples could be:

Being aware of the standards of

behaviour and output that the public

and others might reasonably expect.

A sense of collegiality, meaning

respect for colleagues.

Ensuring that you have the relevant

knowledge at all times, and refusing to

perform a job for which you are not

qualified (whether by credentials or

experience).

Knowing and abiding by all laws of

the territory that you are working in

and all universal and professional

ethical norms


47

Understanding what the client wants,

and being honest about the results that

you can deliver.

Never doing harm to the client, which

will mean refusing to carry out orders

that you believe will harm the client.

Being ready to quit rather than carry

out work of an unlawful or harmful

nature.

Seeking feedback from anybody who

might be able to provide it (clients,

customers, manager, colleagues,

friends and family).

Keeping your personal skills sharp,

even those that you use rarely.

Keeping up to date with current

thinking and practice.

This article will use Valentine‘s definition

(2013) of professionalism as presented below,

and examine the three overlapping categories

in turn.

The first category contains the elements of

knowledge that all professionals share:

I. Core knowledge

This means the ―body of knowledge‖ that

professionals learn during their entrance to

the profession. Professions each have

different ways of capturing and transmitting

this knowledge, usually a mixture of

classroom learning and learning through

observing experienced practitioners. Each

practitioner can have confidence that all other

practitioners possess the same body of basic

knowledge because of the rigors of the

professional training and induction.

II. Up to date

Most knowledge degrades over time due to

technological change, legal changes, cultural

changes and new ways of thinking. The

professional anticipates a long career over

which many things will change, and so must

equip him/herself with channels of new

knowledge, such as training sessions,

conferences and professional journals.

(Maister, 1993)

III. Experienced

The professional does not have mere ―book-

knowledge‖ but also ―knowledge in use‖.

Whilst the book-knowledge is freely available

to all, it is the understanding of how this


48

information is applied that makes the

professional of great value.

The second category contains aspects of the

practice of professionalism.

IV. Evidence-based approach

The professional imitates the natural science

in following an established routine for

gathering, documenting and acting on

evidence. (McSwite, 1997) The professional

understands the difference between fact and

opinion, and between evidence and

supposition.

V. Respectful

The professional treats clients with respect.

Clients may have many names (such as

customers, patients etc) but should always be

treated with care. (Mumby, 1988) The use of

courteous language and the practice of

making others feel valued is not just ―good

PR‖ but is natural conduct that flows from the

real respect that the professional has for

others.

VI. Confidentiality

The professional is often in a priviledged

position regarding private information

concerning his/her client and should

understand both the law and professional

protocol with regards to gathering, handling,

sharing, storing and transmitting information.

(Maister, 1997)

VII. High Standards

The professional maintains high standards of

work in both the process followed and the

work output. Standards will sometimes

change following reviews and new

legislation, so the professional must keep up

to date.

VIII. Reflective

The professional has a degree of autonomy

because of his/her position, sometimes a great

deal of autonomy. Therefore the professional

must be able to criticize his/her own work

while it is being carried out and after it has

been completed. (Cunliffe and Jun, 2005) The

professional undertakes continual review of

their actions, attitudes and results with the

aim of continual self-improvement.

The third category covers the attitudinal

aspects of professionalism.

IX. Vocational passion

The professional is not just doing ―a job‖ but

is following ―a calling‖. (Adams & Balfour,

1998) The professional is involved in a life-

time pursuit and only true passion for their

work will carry them through.


49

X. Multiple loyalties

The professional has divided loyalties. The

duties to different groups, such as their

employer, their colleagues, their team

members, the public, and their profession will

often be at odds. Where duties appear to

conflict, the professional will reflect and take

advice, but will not compromise their

professional standards. Conflicts are common

in the professional life for instance, the need

for speedy task completion will often conflict

with the need to do a thorough job, and the

duty to be open with your staff may conflict

with the duty to keep management

information confidential.

XI. Higher purpose

The professional is not a mere ―time-server‖

but has an important role in society. The

professional is aware of their contribution to

societal well-being, and uses this inspiration

to drive him/herself to maintain high

standards of process and outout, even when

the current task is uninspiring. (Jun, 1994):

XII. Service & sharing

The professional thinks not primarily of their

own self-interest, but the needs of their

employer, their clients, their staff, the public

and their profession. (Maister, 2000) The

professional is aware that they are an example

to others, and that he/she has the chance to

change many people‘s lives for the better. The

professional often sacrifices their own time

and pleasure to serve the needs of others. The

professional is especially dedicated to serving

their professional community by developing

others and sharing best practice. (Argyris,

1991)

The professional is always reflecting, always

learning, and always improving. Each

professional should have their own ―action

plan‖ for personal improvement. Here are two

ideas that may be useful:

Find a professional friend who you

can share thoughts and questions with,

and meet once a fortnight to discuss

mutual progress on the twelve aspects.

Read the Drucker (1999) article and

reflect on:

o How can I objectively assess my

performance?

o What are my strengths?

o What are my values?

o What can I/do I want to

contribute?


50

References

Adams, G. B.,& Balfour, D. L. (1998):

Unmasking administrative evil, Sage

Argyris, C. (1991): Teaching smart people

how to learn. Harvard Business

Review, 69, 99-109

Cunliffe, A.L. and Jun, J.S (2005): The Need

for Reflexivity in Public

Administration, Administration &

Society; 37; 225

Drucker, P. F. (1999): Managing oneself.

Harvard Business Review, 77(2), 64-

75

Farmer, D. J. (1995): The language of public

administration: Bureaucracy,

modernity, and postmodernity,

University of Alabama Press

Jun, J. S. (1994): Philosophy of

administration, Daeyoung Moonhwa

International

McSwite, O. C. (1997): Legitimacy in public

administration: a discourse analysis,

Sage

Maister, D (1993): Managing the

Professional Services Firm, Free

Press

Maister, D (1997): The Trusted Advisor, Free

Press

Maister, D (2000): True Professionalism: The

Courage to Care About Your

People, Your Clients, and Your

Career, Free Press

Mumby, D. K. (1988): Communication and

power in organizations: Discourse,

ideology and domination, Ablex.

Valentine, D (2013): Decision-making for

consultants, The Institute of

Management Consultants Public

Lecture, May 25th

, Port Harcourt,

Nigeria


51

*Dr Daniel Rossall Valentine is a

graduate of St. Andrews University

(Economics) and King‘s College London

(Philosophy & Theology). He is a faculty

member of INSEEC Business School, Paris;

Birkbeck College, University of London;

Dean of London Graduate School; and Editor

of Governance Voice, a journal which

specialises in research & opinion on corporate

governance, regulation, ethics & reporting.

Before his academic career, Daniel worked

fulltime in Financial Communications, most

recently as Head of Investor Relations &

Financial Communications for a FTSE 100

company. Daniel‘s teaching & research

interests include Micro Economics, Marketing

Strategy, Public Relations, & Corporate

Governance. Daniel will be moving to Oxford

University in September 2013. He may be

contacted at [email protected]

mailto:[email protected]


52

Relevance of Physics Education Programmes of The University of the

Gambia To the Teaching of Senior Secondary School Physics in the

Gambia.

Nya Joe Jacob*

ABSTRACT

In this research, an attempt is made to determine the relevance of the Physics Education

Programmes of The University of the Gambia to the teaching of senior secondary physics in the

Gambia. The Physics Department of The University of the Gambia is selected on the basis of the

fact that it is the only National University in the Country. The instrument used was the Discrepancy

Content Analysis Model (DCAM) in which six major senior secondary content areas in Physics

were listed. They were then qualitatively compared with the Physics Department of the University

of the Gambia Physics Education Frequency counts, percentages and t-test. The major finding was

that the University of the Gambia Physics Education programmes were relevant to the current

senior secondary physics curriculum in the Gambia.

Keywords: Physics education, Gambia educational programmes, Relevance of physics

education, Physics curriculum in Gambia, Problems facing physics teaching.

I. Introduction

Physics is one of the most difficult subjects

taught in schools. A number of students are

even more daunted with its use of mathematics.

In a study done in UK from 1985 to 2006, it

was found that there was 41 percent decrease in

the number of entries to A-level examinations

in sciences. This decreasing trend is similar in

other countries. Despite this trend, physics

remains an integral part of the educational

system. It is through physics that new

methodologies were developed that helped

improve the quality of life, including things

such as automobiles and modern construction.

Society's reliance on technology represents the

importance of physics in daily life. Many

aspects of modern society would not have been

possible without the important scientific

discoveries made in the past. These discoveries

became the foundation on which current

technologies were developed. Discoveries such


53

as magnetism, electricity, conductors and

others made modern conveniences, such as

television, computers, phones and other

business and home technologies possible.

Modern means of transportation, such as

aircraft and telecommunications, have drawn

people across the world closer together --- all

relying on concepts in physics. In 1999 during

the World Conference on Science (WCS), the

UNESCO-Physics Action Council considered

physics an important factor in developing

solutions to both energy and environmental

problems. Physics seeks to find alternative

solutions to the energy crisis experienced by

both first world and developing nations. As

physics help the fields of engineering, bio-

chemistry and computer science, professionals

and scientists develop new ways of harnessing

preexisting energy sources and utilizing new

ones. In the United Nations Millennium

Summit held in 2000, it was recognized that

physics and the sciences will play a crucial role

in attaining sustainable development. Physics

helps in maintaining and developing stable

economic growth since it offers new

technological advances in the fields of

engineering, computer science and even

biomedical studies. These fields play a crucial

role on the economic aspect of countries and

finding new and better ways to produce and

develop products in these fields can help boost

a country's economy. Similarly, the

International Union of Pure and Applied

Physics (IUPAP) asserted that physics will

generate the necessary knowledge that will lead

in the development of engines to drive the

world's economies.

Physics - the study of matter, energy and their

interactions - is an international enterprise,

which plays a key role in the future progress of

humankind. The support of physics education

and research in Gambia is important because:

1. Physics is an exciting intellectual

adventure that inspires young people

and expands the frontiers of our

knowledge about Nature.

2. Physics generates fundamental

knowledge needed for the future

technological advances that will

continue to drive the economic engines

of the world.

3. Physics contributes to the technological

infrastructure and provides trained

personnel needed to take advantage of

scientific advances and discoveries.

4. Physics is an important element in the

education of chemists, engineers and

computer scientists, as well as

practitioners of the other physical and

biomedical sciences.

5. Physics extends and enhances our

understanding of other disciplines, such

as the earth, agricultural, chemical,


54

biological, and environmental sciences,

plus astrophysics and cosmology -

subjects of substantial importance to all

peoples of the Gambia.

6. Physics improves our quality of life by

providing the basic understanding

necessary for developing new

instrumentation and techniques for

medical applications, such as computer

tomography, magnetic resonance

imaging, positron emission tomography,

ultrasonic imaging, and laser surgery.

When a crime occurs, scientists use the branch

of physical science called Forensics to help

solve the crime. Forensic science helps police

officials recognize fingerprints, match DNA to

a suspect and decipher evidence left at the

crime scene. This branch of physical science

helps ensure that police officers can identify,

apprehend and charge criminal offenders. DNA

evidence, which forensic scientists use to place

a defendant at the scene of a crime, is highly

valuable in a court case because it is usually

indisputable.

When you listen to your favorite song through

your stereo, you may not think about the

research and time scientists put into creating

such an interesting device. Scientists refer to

the study of sound waves as "acoustic science."

This form of physical science studies how

sound waves travel and interact with other

objects. Companies use acoustic science to

determine how to create speakers that have a

clear sound. An understanding of acoustic

science also helps producers make clear audio

tracks for movies and allowing someone with

impaired sight to see well. Optics is the branch

of physical science that studies how light

travels through objects and how eyes perceive

the effects of light. The study of optics led to

the invention of vision enhancing lenses. Using

lenses to bend light can allow you to see

objects from long distances or view

microscopic objects. Bending light can also

sharpen a person's vision, the development and

application of fuel is also a branch of physical

science. When you need to discover a new

energy source and how to tap into that energy,

you are using a branch of physical science. You

benefit from the discoveries of energy

production any time you drive your car, turn on

a light or turn on your hot water faucet. Some

energy sources are more beneficial and stronger

than others. Energy production scientists strive

to find the most efficient and safe fuels to keep

you living in comfort.


55

II. Gambia Educational System

The Gambia operates on a 6-3-3-4 system:

Education level Years of study/age Certificate/Exam/Degree

Lower Basic School 6 years/ages 7–13 Grade six Placement Exam

Upper Basic School 3 years/ages 13–16 Basic Education Certificate Exam

Senior Secondary School 3 years/ages 16–19 West African Senior Secondary

Certificate Examination (WASSCE)

University (undergrad) 4 years Bachelor‘s degree

University (grad) 1+ years Master‘s degree

Language: The sole official language of

instruction throughout the Gambian educational

system is English. Lower Basic and Upper

Basic Schools (Grades 1-9): Until 2002,

primary education lasted for six years and led

to the Primary School Leaving Certificate

(phased out). Secondary education was divided

into junior secondary schools, which offered a

three-year course leading to the Junior School

Leaving Certificate, and Senior Secondary

schools which offered a three-year course.

Since 2002, a new unified basic education

system was introduced covering 1-9 years,

through an automatic transition with no

examination at the end of the lower basic cycle.

The cycle is divided into two cycles: lower

basic (Grades I–VI) and upper basic (Grades

VII–IX). There are 368 Lower basic schools

and 89 Upper basic schools in the Gambia.

There is another type of school system called

the basic cycle schools which is a combination

of the lower and upper basic school (grades 1-

9). All Gambian students take the Basic

Education Certificate Examination (BECE) at

the end of grade 9 (ninth grade) in nine or ten

subjects. Admission to Senior Secondary/High

School is competitive. The vast majority of

Gambian students attend government schools

(75%); there are a growing number of private

and international private secondary schools in

the country offering Cambridge IGCSE/ O

Levels or the Government‘s WASSCE.


56

Source: National Statistic Abstract, academic year 2006/2007.

Senior Secondary School (SSS): Senior

secondary education (Grades 10–12) is for

pupils between the ages of 16 and 19 years.

Secondary schools offer a variety of subjects in

science, arts and commerce. At the end of

Grade 12, pupils sit for the West African

Secondary School Certificate Examinations

(WASSCE) conducted by the West African

Examinations Council. Students in all the 55

Senior High Schools take a Core curriculum

consisting of English Language, Integrated

Science, Mathematics, and Social Studies. Each

student also takes three or four Elective

subjects, chosen from one of seven groups:

Sciences, ―Arts‖ (social sciences and

humanities), or Commerce (visual arts or home

economics). The secondary school transcript

should contain a letter or percentage grade for

each subject, for each of three terms, for the

three years of senior secondary school,

equivalent to the tenth through twelfth grades.

Students‘ Term Reports (transcript) contain

rank in class for each subject as well as grades

for class-work. At the end of Senior

Secondary/High School (twelfth grade), all

students take the West African Senior

Secondary Certificate Examination, or

WASSCE, or IGCSE for some of the private

schools. These exams are given nationwide in

May-June each year, but the results are not

available until the following October.

The minimum university standard for

admission to post-secondary education is 5

credits on the WASSCE, including credits in

math and English. Students are expected to

retake exams in subjects they have failed.

The academic year runs from September to July

with a long vacation from: July to September

which also coincides with the rainy season in

The Gambia.

Higher Education: The University of The

Gambia, created in 1999, offers programs

which lead to a Bachelor's Degree after four

years of study in Humanities and Social

Studies, Economics and Management Science,

and Nursing and Public Health; and six years in

Total Number of schools Age group 574 % of Total

Total Number of Basic cycle

schools(combination of the lower and

upper basics school)

7-19 62 11%

Total number of lower basics school 7-13 368 64%

Total number of upper basics school 13-19 89 16%

Total number of senior secondary school 16-19 55 10%


57

Medicine and Surgery. Another institution, The

Gambia College, offers non-degree certificates

and diplomas in Agriculture, Science,

Education, Nursing and Midwifery and Public

Health, Catering, Management Development

and vocational training. Higher technical and

vocational education is offered at the Gambia

Technical Training Institute which offers

courses leading to the examinations of the City

and Guilds of London Institute and the Royal

Society of Arts.

The Ministry of Higher Education, Research,

Science and Technology (MoHERST) was

establishment in 2007. The ministry's

departments are the Directorate of Higher

Education, Directorate of Research and

Planning and the Science and Technology

Directorate.

The mission of the ministry is to :

Provide access to relevant and high

quality education;

provide high quality higher education

services

make science & technology the engine

of growth;

ensure gender equity in education;

promote the principle of lifelong

learning;

promote innovation in science and

technology;

promote research in science and

technology;

ensure sustainable environmental

growth.

Before 1999, The Gambia had no university.

This meant that students intending on higher

education were compelled to go overseas with

very few returning back to Gambia. As a result

of this failure the University of The Gambia

was established in 1999 to train and retain

skills in the country. Since 2005 the institution

has been assisted by the Norwegian Education

Trust Fund to put together a plan of action to

identify possible areas of expansion to meet the

needs of the labour force.

Physics is one of the science subjects

taught at the senior secondary level of the

Gambia educational system. Despite the

importance of this subject as one of the

fundamental ingredients of technology, it is

plagued by persistent low enrolment and poor

performance of students (Balogun, 1985;

Akanbi 1983; Daramola, 1982; Dial, 1972;

Jordan, 1971). Notable among the causes

identified to be responsible for the unsteady

state of Physics teaching in Gambia secondary

schools are: very limited number of

professionally trained teachers. (Bajah, 1975;

Daramola, 1982, 1987), inadequate laboratory

facilities and exposure (daramola, 1982); and

poor science background of students at the


58

junior secondary level of education (Daramola,

1982, 1987, Ogunniyi, 1977). This researcher

believes that the training received by Physics

teachers at the University of the Gambia might

affect both enrolment and performance of

students in Physics.

There have not been many studies to evaluate

the curriculum of higher educational

institutions. Tikhomirov (1968) said that in

USSR, every pupil must study Physics

regardless of his/her future vocation. He also

stated that the key to the general, economic,

cultural and scientific progress in the Soviet

Union was its science teacher and that every

field of study in the USSR has its special

teachers. Michelson (1984) found that graduate

teachers of Darke University were satisfied

with their training. From Saggaf‘s study

(1981), it has been revealed that the English

curriculum of King Abdul-Aziz University,

Mecca, did not meet the student – teachers‘

needs and interest. Thiensuwan (1983)

evaluated Art teacher education programmes at

Chulalongkorn University Bangkok, Thailand.

His findings revealed inadequacy in Art

subject. Nwosu (1990) examined the content

and curriculum development process of

Nigerian tertiary teacher education as well as

its response to the demands of national

development from 1932 to 1987. His findings

revealed serious neglect of the Nigerian tertiary

teacher education curriculum. Irrelevance of

curriculum to teachers‘ needs may be a major

obstacle to students‘ progress and enrolment

even as reported by Jegede (1984),

Oguntimehin (1987) and Willison and

Garibaldi (1976). Hence, the training of

science teachers should not be taken lightly.

This is because the efficiency of any institution

depends on the academic competence of the

teaching staff which in turn is predicated on the

quality and level of the education received by

the teachers. It is very important that

secondary school science teachers are properly

trained since ‗no educational system can rise

above the quality of its teachers‘ (FRN, 1981,

p. 38). This is the rational for this study.

Attempts were therefore made to answer the

following research questions:

1. To what extent are the Physics

components of the Physics Education

curriculum of the University of the

Gambia, relevant to the senior

secondary Physics programmes in the

Gambia ?

2. Do the University of the Gambia run

Physics Education programmes which

are more relevant to the senior

secondary Physics curriculum?


59

On the basis of the above research questions,

the following hypotheses were generated:

Hι There is no statistically significant

difference in the ratings of the relevance

of The University of the Gambia

Physics Education programmes to the

senior secondary Physics curriculum.

H2 There is no statistically significant

difference in the rating of the relevance

of the B.Sc. (Ed) Physics Education

programme of the University of the

Gambia..

H3 There is no statistically significant

difference in the ratings of the relevance

of the Physics Education programme

run by the Gambia College to the senior

secondary Physics curriculum.

III. Research Methodology

Instrument Design: The instrument used for

this study was a researcher designed tool used

to ascertain the availability or otherwise of the

six content areas of the senior secondary

Physics curriculum of the Physics education

programmes of The University of the Gambia

.The instrument ,called Discrepancy Content

Analysis Model (DCAM), was an adapted

version of the input and process evaluation of

the CIPP model of Stufflebeam (1971) and the

Discrepancy Model of Provus (1971).

Each physics content was rated on a two option

scale (Not available = 0, Available = 1). When

a content was available in The University of the

Gambia, it was awarded one mark. Non-

availability attracted zero mark. If the

University scored twenty-five points out of a

total of thirty-six (about 90%) it would be

considered as having a Physics education

programme that was relevant to the senior


IV. Instrument Validation

The instrument was given to three Science

educators in the Department of Curriculum

Studies and Educational Technology,

University of the Gambia, two Physics Lecturer

in the physics department of the University of

the Gambia, and two Physics teachers in St

Peter Senior Technical Secondary School,

Lamin and Nusrat Senior Secondary School in

the Gambia. The contents listed initially were

forty-two but they were reduced to thirty-six.

The criterion given by the experts especially

the Physics teachers and a Physics educator

was that there were repetions in the list

submitted by the researcher.

V. Pilot Study

The Pilot study was performed using The

University of The Gambia. Three weeks after

receiving feedbacks, another set was posted to


60

the same Universities. The two responses were

correlated, using the Pearson‘s Product

Moment Correlation Coefficient. A coefficient

of 0.80 was obtained. The same procedure was

followed for the Gambia Colleges. A

Coefficient of 0.86 was obtained.

VI. Procedure for Data Collection

Copies of the instrument were sent to the Heads

of Physics Departments of the University of the

Gambia and Gambia College to complete. The

researcher who is also a Physics Lecturer in the

University of the Gambia visited them to

interact with the Heads of Departments so as to

make the assignment quicker.

VII. Results

The major research question for this study was:

To what extent are the Physics components of

the University of the Gambia Physics education

programmes relevant to the senior secondary

school Physics curriculum?

In an attempt to provide a solution to the above

question, the scores for the University of the

Gambia and The Gambia Colleges in a test of

relevance were computed and the mean scores

for the two types of institutions were obtained.

The means score for the University of the

Gambia was 91.39% while that for the Gambia

colleges was computed to be 96.67%. This

implies that both the University of the Gambia

and the Gambia College ran relevant Physics

Education programmes.

The Physics Education programme run by the

University was 91.39% relevant to the senior

secondary Physics curriculum while the

Physics education programme run by the

Gambia Colleges was 96.6% relevant to the

senior secondary Physics curriculum. Tables 1,

2 and 3 indicate the above results.


61

Table 1

Relevance of University Physics Education Programme to the Senior Secondary Physics

Curriculum

S/No Universities Physics Education

Programme available

Relevant SS Physics

topics available in

Universities (Total

possible Score = 36)

Percentage of the

SS Physics topics

available in the

Universities

01 University of the

Gambia.

B. Sc Ed 36 100.00

02 Gambia College P.T.C 18 50.00

03 Gambia College A.T.C 30 83.33

Table 2

Relevance of Physics Education Programme of The University of the Gambia and Gambia

College to the senior secondary Physics Curriculum

S/No College of Education Relevant SS Physics topics

available in the Gambia

College and University of

the Gambia.

Percentages of the SS

Physics topics available in

the Gambia College and the

University of the Gambia.

01 University of the Gambia 35 97.22

02 Gambia College 33 91.67

Table 3

Comparison of the Relevance of University of the Gambia and the Gambia College of

education Programme to the senior secondary Physics programme.

Higher Institutions Number Mean Scores Degree Relevance

University of the Gambia 1 91.39 Very relevant

Gambia College (P.T.C/ A.T.C) 2 96.67 Very relevant


62

Hypothesis 1

There is no statistically significant difference in

the ratings of the relevance of University of the

Gambia and Gambia College of Physics

education programmes to the Senior Secondary

School Physics Curriculum.

The scores and mean scores of the University

of the Gambia and those of the Gambia College

in a test of relevance were computed. The

mean scores were then compared and tested

using the t-test statistic for significant

difference. The mean score (91.39) for the

University of the Gambia versus 96.67 for the

Gambia College yielded a computed t-value

of 1.062 which is not significant at 0.05 level.

On the basis of the result obtained, the null

hypothesis 1 above was rejected. Table 4

indicates the result of the t-test run for

Hypothesis 1.

Table 4

Results of t-test computation of the relevance of The University of the Gambia Physics

Education programmes to senior secondary Physics curriculum.

Higher

Educational

Institutions

Number Df Mean Score Standard

Deviation

t-value Probability

Level

University of the

Gambia

1 18 91.30 11.60 1.062 NS 0.05

Gambia College

.

2 18 96.67 2.86

NS = Not significant

Hypothesis 2


the rating of the relevance of the B.Sc. (Ed)

Physics Education programme of the

University of the Gambia and that of the P.T.C

/ A.T.C of the Gambia College to the Senior

Secondary Physics curriculum.

The mean scores for the University of the

Gambia in a test of relevance were calculated.

These mean scores were subjected to the t-test

statistic. According to the results shown in

table 5 below, no statistically significant

difference was reported at the 0.05 significant

level. Hypothesis 2 was therefore accepted.

P.T.C = Primary Teachers Certificate, A.T.C =

Advance Teacher Certificate.


63

Table 5

Result of t-test computation of the relevance of Physics Education Programmes of The

University of the Gambia to Senior Secondary Physics Curriculum

University Number of

core courses

Df Mean Score Standard

Deviation

t-value Probability

Level

University of

the Gambia

5 4 84.442 18.05 1.527 NS 0.05


Hypothesis 3


the rating of the relevance of the Physics

Education programme of Gambia Colleges to

the Senior Secondary Physics curriculum.

Mean scores for the Gambia Colleges were

calculated. The mean scores were then

compared, using the t-test statistic. Table 6

shows the results. The obtained t-value of

0.785 is not significant at the 0.05 level.

Hypothesis 3 was therefore also accepted.

College of

Education

Number of

courses

Df Mean Score Standard

Deviation

t-value Probability

Level

Gambia

College

5 4 96.110 2.83 0.023 0.05

Gambia

College

5 4 97.220 3.10


Summary of Major Findings

Findings from this study indicate that:

1. The University of the Gambia and the

Gambia Colleges ran Physics

education programmes that were

relevant to the Gambia senior


2. The Universities of the Gambia ran

Physics Education programmes that

were relevant to the Gambia senior


3. The Gambia College ran Physics

Education programmes (P.T.C /A.

T.C) that were relevant to the


64

Gambia senior secondary Physics

curriculum.

VIII. Discussions

The results presented in this Research work

indicated that the University of the Gambia and

the Gambia College claimed to be running

Physics Education programmes which were

relevant to the senior secondary Physics

curriculum.

Hypothesis 1 was confirmed by the result in

table 4. It indicated that the Physics Education

programmes offered by both the University of

the Gambia and the Gambia College were rated

by respondents to be relevant to the Gambia‘s

senior secondary Physics curriculum.

The result obtained from hypothesis 2 is to be

expected since majority of the staff are from

the University of the Gambia and the Gambia

College. Also, the idea of selecting external

respondent from St. Peters Technical Senior

Secondary School and Nusrat Senior Secondary

School might have possibly allowed for similar

curricula in those Senior Secondary Schools..

Results obtained from hypothesis 3 confirmed

that Gambia Colleges ran Physics Education

programmes (P.T.C /A.T.C ) that were relevant

to the senior secondary Physics curriculum.

This is contrary to expectation, since The

Gambia College were not expected to train

Senior Secondary Science teachers primarily.

Indeed, they were, as they still largely are,

expected to train teachers for junior secondary

General science.

It is therefore desirable for The University of

the Gambia Physics Education programmes to

be relevant to Senior secondary school Physics

curriculum because the teachers are trained to

teach at that level. The University of the

Gambia‘ Physics Education programmes can be

made more relevant if Physics teacher-trainers

familiarize themselves with the Senior

Secondary Physics curriculum and plan

academic programme to cater for the academic

needs of prospective senior secondary Physics

teachers.

The Ministry of Higher Education is also

implored to intensify its monitoring machinery

in order to ensure that The University of the

Gambia and Gambia College run identical

Physics Education programmes which would

cover the content of the joint agreed senior


In the light of the above findings it might be

worthwhile to sample opinions of senior

secondary Physics teachers concerning the

appropriateness of the training they received in

relation to the job they are doing.

It is also considered a profitable exercise for

future investigation to carry out similar


65

researches into other subjects that are usually

combined with Physics in the University of the

Gambia in order to promote a more meaningful

career development of The Gambia senior

secondary Physics teachers.

In summary, physics is viewed as an essential

part of the educational system of The Gambia.

We therefore urge Gambia Ministry of Basics

and Secondary Education to seek advice from

physicists and other scientists on matters of

science policy, and to be supportive of the

science of Physics. This support can take many

forms such as:

National programs to improve physics

teaching at all levels of the educational

system.

Building and maintaining strong

departments of Physics in the

University of the Gambia and Gambia

College with opportunities for grants to

support research.

Scholarships and fellowships for both

undergraduate and graduate students

studying physics.

Adequate funding for national

laboratories and the formation of new

ones as appropriate.

Funding and facilitating international

activities and collaborations.

The contribution of physics to all

aspects of life, material and non-

material, will be essential for the

foreseeable future.

Physics currently faces serious

problems in the world. Many of these

problems affect science in general, but a

number are specific to physics.

Actions are needed to assure the

continued health of physics research,

teaching and cultural influence. Some

form of 'contract' between physicists

and the Gambia will be required.

These research emphasized that the problems

physics faces are not related to the subject

matter but to its relations with the Gambian

student and the perceptions of the Gambia

society. By 'physics', we include the physical

sciences in general and we affirm the growth of

interdisciplinary fields and the trend for areas

such as astronomy, cosmology, environmental

studies and biophysics to become ever more

closely linked with all aspects of physics.

Physics is a central part of our culture

and will continue to inspire many

people. Physics reveals important

universal truths notwithstanding certain

strands of postmodern thought.


66

Physics will continue to underpin all

science and technology for the

foreseeable future.

Physics is and will continue to be

essential for analyzing and solving

urgent environmental and energy

problems.

Physics plays a unique educational role:

Physics is global and constitutes our

best 'anti-Babel'. Generations of

physicists of the most diverse political

and cultural backgrounds have

collaborated on the basis of shared

understanding and shared ideals.

Physics sets standards of rational

thought in the face of irrationality; it

upholds the primacy of observation.

Many people feel that science robs the

world of meaning and this deeply

affects their attitude to science. Science

is felt by many people to be 'cold' and

'alienating'.

Modern forms of irrationality are

becoming widespread and sometimes

involve outright opposition to scientific

attitudes and even scientific knowledge.

There is sometimes an unfortunate,

even dangerous, political aspect.

There is a serious 'authority problem' in

modern life with few people able to

make rational judgments as to who or

what to believe. This is reflected in a

widespread relativism improperly

invoking Einstein. Similarly,

Heisenberg is improperly invoked in

promoting the idea that everything is

uncertain anyway. The widespread

tendency to adopt conspiracy theories is

a potentially dangerous aspect of this

problem. There is a corresponding

tendency in academe in the form of

social constructivism; in extreme form

this denies that science can

progressively approach universal truth.

External pressures, sometimes

commercial in nature and often

exacerbated by funding problems, lead

to damaging conflicts within subject

areas. Damaging conflicts also arise

between subject areas, particularly

under pressure of inadequate funding.

In the Gambia there is a squeeze on

industrial research as a result of 'short-

termism'.

Science teaching and research face

specific local problems.

It is precisely the nature of many of

these items which makes greater

support for science an urgent matter in

the Gambia.


67

IX. Recommendation

The Ministry of Basic and Secondary

Education, Ministry of Higher

Education of the Gambia Should ---

Promulgate a declaration affirming the

vital importance of basic physical

science and the need to protect and

support curiosity-led physics.

Affirm the importance of making a

substantial effort to educate and inform

the youth of the Gambian. . A guideline

should be established recommending

that, say, 1% of money spent on

research should be made available for

public awareness-building.

Provide substantial support for the

improvement of the teaching of physics

in all senior secondary schools in the

Gambia, at all levels from school to

university.

The Ministry of Basic and Secondary

Education should--promulgate the principle

that physics should be taught by persons who

have been trained to become physics teachers.

Reliable information concerning curricula in

the Gambia should be established and made

widely accessible. Support is required for

teachers, for example by enhancing their

prestige and providing continuing education

and personal development.

establish means for supporting physics within

the new democracies of Gambia. This should

be done by facilitating international

collaboration and by encouraging the support

of physicists in the country. Find ways to

support and utilize for mutual benefit the

reservoir of advanced expertise in the Gambia.

The long-term health of physics requires the

establishment of guidelines linking R&D

expenditure to gross national product (GNP) at

a level appropriate to the economic state of the

country. In addition, there should be guidelines

and standards for coherent and stable national

science policies; these policies should be

developed in close consultation with national

scientific communities.

The impact of globalization on all our

institutions and our value systems was a

common element in many contributions. It is

clear that physics will have a key role to play in

studying and solving the global environmental

and energy problems the world will face in the

coming century. Globalization was felt in

another way: while some of the problems listed

below are particular to specific regions, there

was nevertheless very much common ground in

the identification of the general problems faced.


68

X. Challenges faced by Physics

Teaching in the Gambia.

These Research identified many difficulties

faced by physics as an 'institution' and as a

subject in schools and universities. These

difficulties do not arise from its own subject

matter and in particular the research affirmed

that the subject is certainly not 'worked out.'

Nevertheless, physics as an activity and as an

academic subject does face problems and some

of the specific points are:

For many students, physics can seem

remote from their everyday concerns.

This is true also for the general public.

This is in great measure because

physics is abstract and lacks

visualizable elements (particularly

modern microscopic physics, with

astrophysics an exception). This

presents a problem for teachers and

those communicating with the student.

The fact that physics is essentially

mathematical also presents special

problems. While the mathematical

language is a main strength of physics

as a discipline, it is a major obstacle in

the way of communicating the meaning

of physics to the students..

Many school science curriculums are

relatively static and remote from

exciting contemporary developments

and unrelated to important

contemporary issues such as medicine,

energy and the environment. This is in

spite of the direct relevance of physics

to all these issues.

Physicists have acquired a negative

image in some parts of the society, not

least because of the association with

nuclear weapons.

The public has no clear picture of how

society has benefited from physics and

how physics is essential for solving

environmental and energy problems.

There is no 'physics industry' in the

sense that, for example, there is a

'chemical industry' and a 'biotechnology

industry'. The following two problems

are, in part, consequences of this.

Students in schools are unaware of the

career possibilities enabled by

education in physics which exist even in

the University of the Gambia in which

high-technology industry is not strong.

Physics faces problems in the university

of the Gambia: there are fewer students,

and many appear to be less able.

Sometimes, multi-disciplinary courses

at undergraduate level add to the

downward trend in the academic level

of courses. This lowering of standards

also occurs as a result of pressure to

'satisfy the students'. The supply of


69

students to do B.Sc Ed ( physics) is

highly susceptible to economic

circumstances and Gambia frequently

face a serious shortage.

In the Country there is a squeeze on

pure research and a growing

requirement for researchers to justify

their work in terms of economic

benefits.

In Gambia there is a serious lack of

competent and enthusiastic physics

teachers.

Physics is particularly subject to

competition from pseudo-science. This

is an aspect of the authority problem:

the public is confused as it is confronted

with a mixture of information and

misinformation through the media,

including the Internet.

XI. Remedies to the Problems faced

by physics Teaching in the Gambia.

Politicians at the highest levels are

beginning to find that the prestige

arising from national success in pure

science is of value in international

negotiations. A related fact is that, in

the Gambia, it is success in science

(along with sport) which most arouses

national pride.

In the country, there is a higher than

ever interest in popular science. This

point has been emphasized by

professionals in the popular science

business, and is also clear from the

number of books published.

Our defence of physics, as well as

science in general, must find ways of

exploiting these hopeful points. It was

pointed out that 'The resource of the

21st century is knowledge...‘ and

certainly physical knowledge will be an

important part of this.

The Researcher identified a number of areas

where action by the physics Teacher and its

friends, including those involved in teaching

physics, could be of great benefit:

Physicist Should ---

present a united front, suppress

factional fighting, show respect for

different subject areas. (We are

vulnerable to 'divide and rule'.)

deal responsibly with the public, avoid

exaggeration, be honest and should not

infringe conventions relating to peer

review and publication.

assume more responsibility in the issues

of the global environment, sustainable

growth or equilibrium and the energy

problem. Physics will have a key role to

play in finding an acceptable solution to

these problems .


70

Facilitate improved means for scientists

to advise (and enter into dialogue with)

government and other public

organisations. (Interaction should be

both ways and involve the grass roots

scientists.)

find ways of using the expertise of

sociologists to explore in greater depth

the cause and nature or anti-scientific

feeling; this could even lead to entente

between physics and some part, at least,

of the world of sociology. This could be

of great benefit. An urgent problem

requiring study is the way the media

treat pseudo-science in modern

pluralistic societies.

find ways to encourage industry to

support long term and curiosity-led

research. Governments should be

persuaded to encourage, facilitate or

enforce this (through tax laws, etc.).

participate in research involving both

scientists and economists which shows

the long-term influence of scientific

research on GNP. This should be done

in a way which includes such things as

the contribution of the training which is

an important byproduct of pure

research.

XII.Conclusion

Physics teaching must respond to changing

social and also scientific circumstances. There

is much value in courses which relate the

important findings and perspectives of

cosmology etc. to common human needs and

aspirations. Teachers should recognize the

value of relating physics teaching to matters of

everyday importance, including environmental

and energy issues. Teachers should emphasize

that it is everybody's moral duty to have an

elementary understanding of the physics of the

threatened global environment. The abstract

aspects of physics should be moderated at the

introductory level. There are many 'modern

physics' topics which can be made very

accessible with imaginative teaching methods

involving pupil activity. A case was put that

they can be made more accessible and more

relevant than some traditional topics if they are

presented with appropriate explanations.

Evidently there is a need for continuing debate

concerning the teaching of physics in schools.

There is no accepted general solution to the

apparently contradictory requirements of, on

the one hand, attracting talented young people

into physics and preparing them for university

level studies, and, on the other hand, teaching

physics in a way that does not repel and

alienate future citizens. Research should be

conducted on the anomaly that represents the


71

low participation of women in physics in the

Gambia as compared to others and remedies

should be sought. We should do this in the first

place because of the human fulfillment and

beneficial productivity which is currently being

lost. There is further potential benefit: the

remedy may substantially improve the public

status of physics in general.

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Education in Nigeria since 1960. Paper

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reforms in selected Nigerian

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* Nya Joe Jacob, Department of

Physics, University of the Gambia.

E-mail –[email protected].

mailto:–[email protected]

International Academic Journal of Development Research (IAJDR) Vol. 1, No 2, July-December, 2013

74

Collective Learning and Knowledge Development in the Evolution of

Regional Clusters of High Technology SMEs in Europe

Dr. David Keeble and Dr. Frank Wilkinson *

ABSTRAC

KEEBLE D. and WILKINSON F. (1999) Collective learning and knowledge development in the

evolution of regional clusters of high technology SMEs in Europe, Reg. Studies 33, 295—303. This

paper outlines the aims and objectives of the TSER Network on Networks, Collective Learning and

Research and 1 ethnology Development in Regionally Clustered High Technology Small and

Medium Sized Enterprises (SMEs), and considers evolutionary trajectories of European regional

clusters of such SMEs in the 1990s. It reviews the development of ideas concerning regional

clustering, from Marshall‘s industrial districts, through innovative milieux, to notions of regional

untraded interdependencies, networks and collective learning. Particular attention is paid to how

firms and regions develop competences and new knowledge as the basis for successful innovation.

It concludes by outlining the focus of individual papers.

Key Words: Collective Learning, Knowledge, Development, Evolution, Regional Clusters,

Technology

I. Introduction

This Special Issue of Regional Studies contains

a series of original research papers contributed

by members of the European research network

on Networks, Collective Learning and

Research and Technology Development (RTD)

in Regionally Clustered High Technology

Small and Medium Sized Enterprises. This

network, whose meetings have been funded by

Directorate-General XII for Science, Research

and Development of the European Commission

under the Targeted Socio-economic Research

Initiative of the Fourth Framework

Programme, has been studying the role and

importance of research and technology link-

ages in the evolution and competitiveness of

selected European regional clusters of

innovative high technology SMEs. These

linkages, which are both local and global,

involve universities and public research

institutes, other technology based SMEs and

large firms. A major focus of the network‘s

investigation has been to try to assess the


75

extent and importance for successful SME

innovation and knowledge development in

these regional clusters of ‗collective learning

processes‘, operating through regional linkages

and networking between firms and odier

organizations, by flows of highly-skilled

workers within the regional scientific, research

and professional labour market, and by

localized processes such as new firm spin-off.

Network members have also attempted to chart

the evolutionary trajectory of, and changes in

the role of SMEs in, the selected European

high technology regional clusters in the 1990s.

The regions studied and the researchers

involved are: Cambridge (David Keeble, Clive

Lawson, Barry Moore, Frank Wilkinson and

Elisabeth Garnsey); Oxford (Helen Lawton

Smith); Grenoble (Michel de Bernardy);

Sophia-Antipolis (Christian Longhi); Munich

(Rolf Sternberg and Christine Tamasy); the

Dutch Randstad (Egbert Wever); Pisa,

Piacenza and NE Milan (Roberta Capello and

Roberto Camagni); Goteborg (Asa Litidholm

Dahlstrand); Helsinki (Ilkka Kauraneri and

Erkko Autio); and Barcelona (Pere Escorsa,

Ramon Maspons andjaume Vails), with theor-

etical contributions from Edward Lorenz. The

Network has been co-ordinated by David

Keeble and Frank Wilkinson of the ESRC

Centre for Business Research, University of

Cambridge, with Clive Lawson as Network

Rapporteur. While not all network members

have contributed to this Special Issue, the

individual papers which follow are gready

indebted to the collective endeavours and

debates of the whole network.

During the course of its work, the network has

produced four substantive reports on die

development of these European regional

clusters of high technology SMEs. These cover

the following themes: regional institutional and

policy frameworks; university research links

and spin-offs; networks, links and large firm

impacts; and collective learning processes and

knowledge development (KEEBLE and LAWSON,

1996, 1997a, 1997b, 1998). A Final Report on

the network‘s findings is due for submission to

the European Commission by March 1998.

II. Collective Learning, High

Technology Smes, and European

Regional Evolutionary Trajectories

in the 1990s

The specific aim of the set of papers presented

in this Special Issue is to assess the extent and

significance of ‗regional collective learning‘

processes of different kinds in understanding

the innovative activity and recent evolution of

high technology SMEs in the European

regional clusters involved. In the papers, the

terms ‗high technology‘, ‗technology-

intensive‘ and ‗technology- based‘ are used

interchangeably to refer to firms and industries

whose products or services embody new,


76

297 innovative and advanced technologies

developed by the application of scientific and

technological expertise. Such firms almost

invariably regard such expertise and resultant

technological leadership as the firm‘s major

competitive advantage, and are usually defined

in practice by high R&D-intensky (high levels

of R&D expenditure and/or employment

relative to turnover or total workforce)

(AYDALOT and KEEBLE, 1988: KEEBLE, 1992).

SMEs are usually defined as smaller

independent, owner-managed enterprises with

a workforce of less than 250 employees.

Defining, conceptualizing and theorizing die

notion of ‗regional collective learning‘ is a

major task of the first paper in this Special

Issue by Lawson and Lorenz, and is also

discussed later in this and in subsequent

papers. A simple definition at the outset,

however, is that regional collective learning

involves ‗the creation and further development

of a base of common or shared knowledge

among individuals making up a productive

system which allows them to co-ordinate their

actions in the resolution of die technological

and organisational problems they confront‘

(LORENZ, 1996). The creation and development

of such a localized knowledge base can

involve both conscious and unconscious

mechanisms, an example of die former being

research collaboration between local SMEs or

between an SME and a local university,

examples of the latter being the movement of

‗embodied expertise' and know-how in the

form of researchers, managers and skilled

workers within the regional labour market and

via entrepreneur spin-off from existing local

firms or organizations to create new

technology-intensive firms.

All but one of the seven European high

technology regions which feature in this

Special Issue — Cambridge, Grenoble,

Sophia-Antipolis, Munich, Goteborg, Pisa/

Piacenza/NE Milan, and the Randstad — are

classified by a recent OBSERVATOIRE DES

SCIENCES ET DES TECHNIQUES (OST), 1998, p.

47, study in the highest level (type 1 out of

eight types) of European science and

technology intensive regions based on regional

output of patents and scientific publications.

The exception (Goteborg, classified in type 2)

simply reflects the statistical impact of

exceptionally large Swedish regions. All

contain a substantial cluster ofhigh technology

SMEs, the number of and employment in

SMEs in these clusters having generally grown

considerably since the 1970s. The origin and

nature of these high technology SME clusters

vary, the Munich and Italian cases, for

example, being dominated by manufacturing

firms while Sophia-Antipolis and the Randstad

have developed mainly as clusters of service

firms. While many are focused on universities

or public research institutes, some have been


77

strongly influenced by large local high

technology manufacturing companies. In the

1990s, however, vigorous SME resurgence in

these clusters following the early 1990s

recession appears to have been accompanied

by some signs of convergence in growth

processes (KEEBLE and LONGHI, 1998). This

reflects diversification and technology

combination in new dynamic sectors

(information and telecommunications

technologies, Internet and multimedia

applications, biotechnology), continuing SME

spinoffs and growth in critical mass, new

characteristics of die globalization process of

large firms, and new or enhanced

characteristics of the organization of produc-

tion by SMEs. Large global firms appear now

to be seeking explicidy to embed their R&D

activities within such clusters in order to gain

access to highly localized research and

technology competences, while specialized

SMEs in these growing clusters often exhibit

high levels of inter-firm networking and use of

local business support and institutional

resources, hanii- in-hand with active

globalization of their markets.

In the light of this introduction, the remainder

of this paper seeks to provide a broad

conceptual perspective on some of the key

themes which recur in subsequent papers, and

to highlight the particular contribution of each

to understanding the role of collective learning

in the recent development of European

regional clusters ofhigh technology SMEs.

III. Organizat ion, Knowledge

And Learning: Industria l

Distric ts And Innovative

Mil ieux

Until relatively recently mainstream

economics made little of industrial

organization or the relational aspects of inter-

firm linkages apart from suspecting them of

being in restraint of trade. Coase explained the

reason for this: economists think ‗of the

economic system as being co-ordinated by the

price mechanism‘ (COASE, 1937, p. 387) and

‗having regard to the fact that if production is

regulated by price movements production

would be carried out widiout any organisation

at all, well might we ask, why is there any

organisation?

(ibid., p. 388). From such a perspective, the

role of organization is simply to economize on

transaction costs.

In Marshalls work, however, organization and

knowledge are central to the evolutionary

trajectory of capitalism. He argued:

Capital consists in a great part of knowledge

and organisation.... Knowledge is our most

powerful engine of production; it enables us to

subdue Nature and force her to satisfy our


78

wants. Organisation aids knowledge; it has

many forms, e.g. that of a single business, that

of several businesses in the same trade, that of

various trades relatively to one another; and

that of the state providing security to all and

help for many. The distinction between public

and private property in knowledge and

organisation is of great and growing

importance: in some respects of more

importance than between public and private

property in material things; and pardy for that

reason it seems best sometimes to reckon

Organisation apart as a distinct agent of

production‘ (MARSHALL, 1952, p. 115).

In Marshall the central role of organization is

‗the ―integration‖ of the increased subdivision

of function, or ―differentiation‖, as it is called,

[which] manifests itself with regards to

industry in such forms as the division of

labour, and the development of specialised

skills, knowledge and machinery (ibid., p.

201).

For Marshall, market success depended on

increased specialization and the development

of more effective industrial organization. One

way in which this came about was from the

concentration of production in particular areas

in what Marshall (ibid., p. 225) described as

‗industrial districts‘. The benefits of such

localization include an increase in the degree

and specialization of skills and their diffusion

throughout the community so as to create an

abundant supply of appropriately qualified

labour, the growth of subsidiary trades and

specialized services, and increased use of

highly specialized machinery made possible

by the combined demand of many firms. The

concentration of firms in close geographical

proximity allows all to enjoy the benefits of

large scale industrial production and of

technical and organizational innovations

which are beyond the scope of any individual

firm.

Marshall‘s industrial districts effects are long

term, cumulative and depend on co-operation

in knowledge creation and innovation:

When an industry has thus chosen a locality tor

itself it is likely to stay there long: so great are

die advantages which people following the

same skilled trade get from near

neighbourhood to one another The mysteries

of the trade become no mysteries; but are as it

were in the air, and children learn many of

them unconsciously. Good work is rightly

appreciated, inventions and improvements in

machinery, in processes and the general

organisation of the business have their merits

prompdy discussed: if one man starts a new

idea, it is taken up by others and combined

with suggestions of their own; and thus

becomes the source of further good ideas

(ibid., p. 225). And: ‗the broadest, and in some


79

respects the most efficient forms of

constructive co-operation are seen in a great

industrial district where numerous specialised

branches of the industry have been welded

almost automatically into an organic whole‘

(MARSHALL, 1920, p. 599).

For Marshall the driving force in industrial

districts is freedom of industry and enterprise,1

Nevertheless, trade associations had a co-

operative role to play in coordinating

production and standardizing products but he

also argued that such benefits could accrue

automatically by the individual efforts of

entrepreneurs within industrial districts.

Moreover, although firms could benefit from

scientific and other specialized services

provided by formal associations, without the

profit incentive staff of the associations ‗may

be found lacking in energetic enterprise‘ and

the proliferation of such institutions ‗might dry

up many of the sources of truly original

inventions‘ (ibid., chapter XII, book III, pp.

606—7). For similar reasons, public sector

intervention had a positive though limited role

to play in the development of industrial

organization and technical progress (ibid., pp.

666—72).

Individualistic initiative and free enterprise are

therefore the central driving force of economic

progress in Marshall Collective action may

foster individual success but it risks blunting

initiative and inhibiting competition. For

Marshall, the importance of the localization of

production within industrial districts is that it

creates an environment more favourable to

individual success. These positive external

economies to individual firms stem,

fundamentally, from their geographical

proximity rather than any institutional

structuring. The close proximity of firms

within a particular industry provides

opportunities for entrepreneurs to specialize

and for the district as a whole to secure

economies of scale (both static and dynamic)

denied to isolated individual firms because of

internal restrictions on growdi. They can

therefore afford to stay small and concentrate

their initiative and inventiveness on what they

do best. By doing so they create, in turn, an

environment which improves the competitive

position of the locality.

Marshall‘s analysis has played a significant

role in theorizing the success oflocal clusters

of small manufacturing firms in northern and

central Italy and elsewhere — so much so that

they have been labelled ‗Marshallian industrial

districts‘. However, contemporary analyses of

these industrial districts put much greater

stress than did Marshall on the collectivist and

institutional basis for successful co-ordination.

Emphasis is placed on the influence of

community — defined as family and other

social relationships, rules of behaviour

embedded in those relationships, and more


80

formal institutions such as churches and

political parties — in guaranteeing standards

of behaviour which engender trust and co-

operation and thereby strengthen inter-firm

networks. Within industry, trade associations

are seen as playing a central role in providing

technical, financial, marketing, training and

other services. Trade associations also

represent employers in their dealings with

local and central government and with

organized labour. In turn, government

establishes by social, company and other

legislation a framework of standards which

underpins the equitable and co-operative

relationships between firms (Sengenberoer er

al., 1990). An important feature of modem

industrial districts is, then, what Amin

andTHRlFT, 1994, 1995, p. 102, have

described as ‗institutional thickness‘2 (see

KEEBLE et al., this issue). The outcome is

seen as competitive success based on high

rates of process arid product innovation, the

rapid diffusion of new' techniques and good

design, high quality and -wide variety in

products (BRUSCO and Sabel, 1981).

The importance of MarshaU‘s theory of

organization, especially when compared with

its impoverished version rooted in transaction

costs, is the central role given to technical and

organizational change, inter- as well as intra-

firm relations and the importance of learning in

the process of knowledge formation. These

have emerged as the central concerns of social

scientists studying the process of technical

change and particularly the evolution of high

technology industries and regions. In this

context, European researchers have adopted

the term ‗innovative milieu‘ (milieu

innovateur: see AYDALOT, 1986; AYDALOT and

KEEBLE, 1988; CAMAGNI, 1991; RATTI et al.,

1997) to describe the local clustering of highly

innovative producers of high technology

products and services.

The main mechanisms for knowledge

transmission and learning in innovative

milieux include: interrelationships between

suppliers and customers and the makers and

users of capital equipment; formal and

informal collaborative and other links between

firms in particular sectors;3 inter-firm mobility

of workers in localized markets for high skill;

and the spin-off of new firms from existing

firms, universities and public sector research

laboratories. Labour mobility and new firm

spin-offs transfer knowledge ‗once and for all‘

and/or serve to establish an ongoing link

between the firms and with research

institutions via the maintenance of personal

relationships. More one-off milieu effects

include imitation, emulation and reverse

engineering but, in this case, proximity is more

important dian sustained interaction and

enduring relationships.


81

Capello (in this issue) has provided a schema

of die emergence of innovative milieux by

listing the preconditions for the various stages

of development. Specialized areas emerge

from simple geographical proximity with the

growth of stable inter-SME linkages and the

establishment of a local labour market for die

required skills. These provide continuity over

time for local technological and scientific

know-how. Industrial districts develop from

specialized areas as close social interaction and

supportive institutions generate high trust and

encourage informal and tacit knowledge

transfers. This leads to industrial atmosphere,

external economies and savings in transaction

costs. From cooperative relations and the free

flow of knowledge, synergies and innovative

capacity evolve and the industrial district

becomes an innovative milieu. The hallmark of

the innovative milieu is that the localized

labour markets, inter-firm relationships and

firm spinouts enrich the local knowledge base

and enable exploitation of localized collective

learning capabilities to develop profitable new

products and processes.

It should be noted that progression from each

stage depends on achieving the appropriate

pre-conditions. Moreover, although the

achievement of the innovative milieu stage

reinforces the stability of the labour market and

inter-SME links and increases the opportunity

for spin-out activity, these positive feedbacks

are not guaranteed in the long run. The

continuous accumulation of knowledge could

lock firms into obsolete and increasingly non-

competitive technological trajectories. In these

circumstances, collective learning processes

which function as ‗barriers to entry‘ to

outsiders may be transformed into ‗barriers to

exit‘ for insiders (BIANCHT, 1989). Learning

from knowledge sourced externally is therefore

an essential ingredient for the continued

success of an innovative milieu (CAMAGNI, 1991:

KEEBLE et al., this issue).

IV. Competences , Knowledge

And Learning

Competences determine what are die technical,

marketing, managerial and other capabilities of

organizations and therefore their competitive

performance. The dynamic capabilities of

organizations are their ability to modify their

competences so as to improve business

performance. The basis of competences is the

knowledge organizations hold that is embodied

in their routines and procedures. Shared

knowledge of the technical, marketing,

organizational and other aspects of the

productive system enables organizational

members to effectively communicate with one

another and co-ordinate their joint activities. In

turn, learning serves to incorporate new

information into the knowledge base by which


82

the competences of organizations are improved

and new ones developed. As the knowledge

base of competences is necessarily shared by

the members of the organization, and is

enhanced by their participation in the

organizations activities, learning is essentially

a collective activity.

Knowledge is either codifiable (and therefore

readily transferred) or tacit (and therefore not

readily transferable beyond the context in

which it is embedded). Tacit knowledge,

importandy, is specific to organizational and

geographic locations and this increases its

internal circulation but impedes its external

accessibility. Learning processes which absorb

information and generate and diffuse

knowledge (of bodi sorts) are collective

activities which form part of the background

and experience of each organization Their

effectiveness depends on the quality of social

interaction and lines of communication. These

are enhanced by a shared social and cultural

environment from which develop common

routines, norms and standards which depend

upon trust and the willingness to co-operate.

The ability to form and maintain effective

social relations is therefore a key competence.

Learning depends on combining diverse

knowledge which becomes incorporated into

organizations‘ routines in an incremental

manner. The development of the competences

of organizations is therefore path dependent.

Organizations learn by consolidating new

information into their knowledge base which is

fiirther enhanced by the practical experience of

implementing the modified operating systems.

However, established competences may prove

obstacles to the adoption of radical innovations

so that organizational progress may require

dis-learning. In a similar way, whilst close

inter- and intra-firm linkages are important for

initiating and diffusing incremental change,

they may also form obstacles to the spread of

radical new ideas which requires openness to

the outside.

V. Organization, Networking and

Untraded Interdependencies

To understand the organization of production

and business operations it is necessary to put

them in their historical, socio-cultural,

institutional and spatial context. In this respect,

increasing attention has been paid to business

networks. In an authoritative recent review,

YEUNG, 1994, p. 476, defines a ‗business

network‘ as *an integrated and co-ordinated

set of ongoing economic and non-economic

relations embedded within, among and outside

business firms‘, a definition broad enough to

include geographical groupings of SMEs,

transnational corporations and the linkages

between them. Localized clusters of high

technology SMEs may exhibit a considerable


83

degree of intraregional networking in which

collective learning is a club good from which

outsiders are excluded (CAPELLO, this issue).

More generally, these territorial clusters are

characterized by what SLORPER, 1995, has

termed ‗untraded interdependencies‘ which

extend beyond traditional customer/supplier

and servicing relationships to embrace formal

and informal collaborative and information

networks, interactions through local labour

markets, and shared conventions and rules for

developing communications and interpreting

knowledge.

However, internal networks are not the only

consideration for high technology districts.

The markets for their products are often world-

wide (KEEBLE et al., 1998) so that questions

arise as to how such locally concentrated firms

develop external links. A related issue is how

large transnational firms relate to local clusters

in which they, or dieir branch establishments,

may be located. This is of particular relevance

as transnational firms are increasingly

decentralizing their learning processes and the

development of their core competences so as

to benefit from linkages with, and

embeddedness within, a particular local

innovative milieu, as noted earlier.

Increasingly, networks internal to innovative

large firms and with localized firms are

becoming complementary, mutually

reinforcing mechanisms designed to develop

synergies with a particular milieu so as to

increase the innovative capacity of the large

firm. However, to the extent that this requires

the corporation to become engaged in

collective learning processes within regional

clusters, benefits can be expected to spill over

to small firms with significant milieu effects

(see STERNBERG and TAMASY, this issue). It

is therefore important to recognize that know-

ledge transmission and collective learning may

be fostered by cultural, institutional and

geographical proximities often in combination.

It also follows that networks and dependencies

may be within, between and outside firms and

although they may not be traded (or even

tradable) they may have significant effects on

the competitive performance of organizations.

VI. Innovation Processes

Innovation requires the development of new

vocabularies and concepts to enable the

creation of new knowledge and these changes

are the greater the more radical the innovation.

As Lawson and Lorenz argue (in this issue),

innovation should be understood as a cycle

involving interaction between tacit and

articulated knowledge. A pre-condition for this

process is the building of shared values, norms

and technical understanding so that often

diverse knowledge can be shared. The second

stage is when individuals with diverse and


84

complementary knowledge come together and

collectively seek to explain their ideas about a

new product or technology. This requires the

members of the group to articulate early ideas

about new developments by clarifying their

notions and developing new- concepts which

are mutually comprehensible within the group.

Modified in this way. new knowledge becomes

easier to combine with that of known techno-

logies and methods in the process of building

testable prototypes. At the fourth stage the new

product or process goes into production and,

with this, the knowledge underlying the new

competences, which was articulated in the

initiation and development phases, becomes

increasingly tacit and forms the basis for new

knowledge creation by learning by doing and

incremental technical change.

To an important excent the second stage is

crucial because it is at diis stage diat the cross-

fertilization between science, engineering

production, marketing and other specialisms is

achieved. In this collective effort, it is essential

that the contribution of each is sufficiently

understandable to the others. This is facilitated

by shared tacit knowledge which enables the

individuals involved to effectively formulate

and resolve technical problems. The analysis

of innovation from this perspective forces

recognition of influences which do not stop at

the research, science and technology base of

firms or regions at given points in time, and

necessitates recognition of the dynamic and

evolving interplay between information,

codifiable and tacit knowledge and

competence (AMIN and WILKINSON, 1999). The

specificity of tacit knowledge and compet-

ences means that externally derived

information requires converting if it is to be

readable within internal knowledge and

learning systems. The absorption of radically

new codifiable knowledge requires the devel-

opment of new, or the modification of, existing

tacit knowledge if competences are to evolve

effectively. The problems of the absorption of

change may be eased if the relevant tacit

knowledge is shared by the creators and users

of new knowledge so that effective

interpretative mechanisms can develop. For

any organization, then, the successful

generation, diffusion and utilization of new

ideas can be expected to involve interactions

between internally and externally generated

codifiable and tacit knowledge extending to

the range of suppliers, customers and research

institutions to which it relates. What is notable

in this important respect is the increasing

externalization of research and development

from large corporations and the growth of

business service firms specializing in the

production of technological competence and

knowledge. These operate as intermediaries

between firms and die scientific community

serving as providers of ‗quasi-generic‘


85

knowledge extracted by means of repeated

interactions with their customers and the

scientific community in which computer

communication systems play a pivotal role.

The outcome is an increasing

institutionalization of markets for knowledge

in which such firms provide a bridge for

incorporating scientific knowledge into tacit

knowledge, learning processes and

competences of firms (ANTONELLI, 1999).

The ability to share and utilize diverse

knowledge is an important pre-condition for

the success of high technology regions. In

some cases this emerges from a rich history of

local interaction between users and producers

of the technology (DE BERNARDY, this issue)

or from the activities of technology consultants

(LAWSON and LORENZ, this issue). In other

cases the critical factor may be the way die

multidisciplinary culture of a local university,

combined with a history of spin-offs, serve to

diffuse it widely amongst local producers

(LINDHOLM DAHLSTRAND, this issue). Links

between large and small firms are important in

Munchen and Grenoble as is the role of

technical universities. In Sophia-Antipolis no

such pre-conditions existed, but have begun at

last to emerge because of new developments in

the 1990s, again resulting in the successful

combining of different technologies within

new innovative firms (LONGHI, this issue).

VII. Individual Papers and Their

Focus

The paper by Lawson and Lorenz identifies the

key ideas in the capabilities literature and

shows how they can be usefully extended to

develop a conception of collective learning

among regionally clustered firms. In

elaborating this framework, the paper explores

the relationship between codifiable and tacit

knowledge in the innovation process. The

claim that tacit knowledge, because it is

difficult to transfer in the absence oflabour

mobility, may constitute a basis for sustained

regional competitive advantage is also

investigated. The closing section uses case

study material based on Minneapolis and

Cambridge to illustrate the importance for

innovation of a regional capability for

combining and integrating diverse knowledge,

and of the sources of such capabilities as pre-

conditions for successful high technology

regions.

The Keeble et ah, paper then applies the

concept of regional collective learning to

understanding the recent growth of high

technology SMEs in the Cambridge region,

and demonstrates empirically from an original

interview survey of local firms the extent and

role of three different learning processes,

namely: spin-offs; local networking and

linkages; and labour market recruitment. Two


86

important features of this paper are its stress 011

the parallel importance of wider national and

global networks for the innovative activity of

R&D intensive SMEs in Cambridge, and its

discussion of the extent and nature of recent

collective initiatives which seek to enhance the

regions ‗institutional thickness‘ (AMIN and

THRIF T, 1995) and innovative capacity.

Sophia-Antipolis, the government-funded

science park inland from the Cote d‘Azur in

southern France, represents an historically

totally different type of high technology

region. In reviewing its evolution from a

collective learning perspective, Longhi‘s paper

shows how the insertion ofbranch units of

large international firms and public research

institutes into a relatively empty space meant

that, if anything, the new development

internalized high technology capabilities

within large organizations. Attempts to

stimulate local technological transfer from this

knowledge base failed due to the insufficient

numbers of highly qualified workers to

support the formation of a local labour market.

In the 1990s, however, the capabilities of

Sophia-Antipolis to generate a milieu effect

have significantly improved with the

relocation of departments of the University of

Nice to die science park, increased

encouragement of spin-offs by public research

institutes and large firm downsizing resulting

in significantly increased small firm formation

and strengthening of links between large and

small firms as the former externalized an

increasing proportion of their R&D activities.

The result is a striking ‗endogenization‘ of a

previously externally controlled ‗satellite

platform‘.

The development of collective learning

capacities in Grenoble is reviewed by De

Bernardy, who stresses how the region‘s rich

mix of public research institutes, universities,

large firms and technology-based SMEs has

created over time a critical mass of scientific

and managerial competences, a density of

informal and formal inter-firm and

organization networks, and a professional

milieu, which has enabled the regions economy

to restructure itself through the development of

new innovative products and firms, in the face

of external technological and market

challenges. A particular feature of De Bernardy

s compelling story of this ‗dynamic innovation

system‘ is his identification of different types

of technology based SMEs, each with different

interaction networks and patterns of depend-

ence on regional collective learning capacities

and other local firms and organizations.

Capello‘s paper argues that ambiguities exist

in the definitions of learning and collective

learning She suggests that ‗club externality‘ is

a distinguishing feature of collective learning

which has ‗continuity‘ and ‗dynamic

synergies‘ in common with learning Her


87

empirical analysis based on three Italian high

technology manufacturing milieux reveals that

the largest group of firms combines external

learning with more traditional benefits of

industrial district membership (cultural

proximity and industrial atmosphere), with a

small group which is more autonomous with

mainly internal learning processes, and an

even smaller group characterized by socialized

mechanisms of spatial transfer of knowledge

(collective learning). A positive relationship

between labour turnover and innovation

supports the idea that collective learning is an

important feature of radical product innovation

while both radical and incremental product

innovation is associated with the cultural

proximity of the workforce.

The paper by Sternberg and Tamasy uses an

array of indicators of R&D intensity to identify

Munich as Germany‘s leading high technology

region with a broad industrial base. It identifies

two dominant reasons for Munich‘s emergence

as a leading European high technology cluster,

namely the presence of large firms such as

Siemens, and the regional impact of federal

R&D and military expenditure channelled to

the region in part by influential regional

political advocacy. At the same time, the

region is characterized by numerous

technology-based SMEs, and ‗an innovative

environment‘ characterized by ‗intensive

intraregional co-operative networking‘. Special

attention is paid to the role of Siemens and

especially its connections to R&D intensive

SMEs. Rather than dominating them and

threatening their independence, Siemens

enjoys diverse and often informal co-operative

links in innovation with local SMEs.

The focus of Lindholm Dahlstrands

contribution is specifically on the role of

technology intensive spinoffs as a key process

in the development of collective learning in the

Goteborg region which, despite major

restructuring of old manufacturing industries,

has witnessed substantial growth of new high

technology SMEs since the 1980s. Most such

spin-offs have emerged either from Chalmers

University of Technology or from the region s

larger firms, while there is a surprisingly high

incidence of local labour market recruitment

and mobility of technical staff. Both these

processes result in the diffusion and

combination of embodied technological

expertise, and hence the development and

strengthening of a regional collective learning

capacity. Interaction with spin-off ‗parents'

does however diminish over time, with a

corresponding increase in the importance of

wider national networks, as in the Cambridge

case.

Finally, and as an important qualification of

the emphasis in this Special Issue on the

benefits of spatial proximity in SME

innovative activity, Wever and Stam‘s paper


88

shows that in the case of the Netherlands,

regional clusters of small high technology

firms scarcely exist. While most such firms are

concentrated in the Randstad, this spatial

pattern, in a small and homogeneous country,

applies to firms generally. Moreover, the

innovative linkages of technology intensive

SMEs in the Utrecht area are national, not

regional. Most such firms are engaged in the

provision of technology intensive services, and

supply national markets. A significant

minority are spin-offs from large foreign-

owned computer firms. The paper thus

highlights the limits of a regionally bounded

approach to high technology SME growth

when dealing with the particular case of a

small, culturally homogeneous economy with

open borders situated at the heart of an

integrating Europe.

Acknowledgements—The Network is greatly

indebted to Anita Biggs and Linda Brosnan of

the ESRC Centre for Business Research,

whose cheerful efficiency as successive

Network secretaries has been invaluable. The

Network also gratefully acknowledges the

support and encouragement of Virginia

Vitorino, liaison officer in DG XII.

NOTES

1. A term Marshall preferred to

‗competition‘ because of the need for a

term ‗that does not imply any moral

quality, whether good or evil, but

which indicates the undisputed facts

that modem business and industry are

characterised by more self reliant

habits, more forethought, more

deliberate and free choice‘ (Marshal!,

1952, p. 25).

2. A term that no doubt Marshall would

haw appreciated although he would

probably have preferred ‗organizational

thickness‘.

3. Recent unpublished research by

Hughes, 1998, based on a large 1997

survey ofR&D intensive British SMEs,

reveals that such firms report engaging

in collaborative or partnership

arrangements with other firms

significantly more frequently than less

R&D intensive firms, and that high

technology service firms most

frequently collaborate with 'firms in the

same line ofbusiness‘ (73% of collabor-

ating firms) with customers (52%)

being the second most frequent partner;

for high technology' manufacturing

firms, this pattern is reversed (48% and

71%, respectively). Suppliers came

third and universities/higher education

institutions fourth in both cases.


89

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92

Opportunity of Financial Investment In Cambodia

Dr. Chhiv S. Thet*

ABSTRACT

The financial markets have performed a vital function within global financial and economic system.

The financial market is the heart of global financial system, which were mobilizing and allocating

savings from the households and setting the interest rates and prices of financial assets (Rose and

Marquis, 2008). The financial market was used as a facilitator between lenders and borrowers or

sellers and buyers of financial instruments such as stock, bond and other securities. Besides, it

channels savings to the business firms and institutions needing more funds for business and

investment project and meet their business spending. Thus, the financial market offers the

significance to the financial system like financing, financial information, equities and corporate

governance and financial investment. The flow of funds through financial market around the world

divided into different segments depends on characteristics of financial claims being traded. One of

the most importance divisions is the money market and capital markets to finance for short-term

and long-term investments raised by business firms, government units and other organizations

(Rose, 2003). Therefore, in order to sustain the financial system in the country, it‘s necessary to

develop the capital and money markets to support the economic growth. When the financial markets

were developed, the financial investment mechanism also produced, that is, corporations,

government units and other institutions have chance to raise funds through issuance of financial

instruments such as stock, bond and other securities to support the business and investment project.

In this regards, investors also take an opportunity to invest their money into the securities

investment. The opportunity is a choice for corporations to plan their investment development in the

future and build their value depends on the capability of management with confidence of publics

(Myers, 1977). Also, it is an expectation of companies to find possibility to enlarge their investment

project in the future and paying compensation to the shareholders and debtors in dividend and

interest (Smith, 1986). The study aims to describe and focus on the opportunities and challenges of

financial investment in Cambodia.

Key Words: Financial Market, Security Market, Stock Market, Opportunity of Financial,

Financial Investment, Investment in Cambodia.


93

I. Background

Cambodia is developing financial

markets aiming to deal with risks arising in the

financial system and also, remove obstacles to

the financial development and build an

alternative mechanism for financing and

investment. Moreover, Cambodia today is

attempting to integrate into the financial

globalization, and especially into ASEAN‘s

financial integration in 2015.

Accordingly, the Government of

Cambodia has to improve the national

economic growth and poverty reduction which

was set out the Financial Sector Development

Strategy (FSDS) 2006-2015 (RGC, 2007) for

strengthening the financial system through the

capital market development for improving

benefits to support the national economic

growth and assure Cambodia‘s competitiveness

within the globalization framework.

The FSDS is a major strategy and

roadmap to establish the Securities Market of

Cambodia in order to mobilize the savings and

capital for financing the government units and

business firms to raise funds for investment and

business projects, besides the banking system.

However, the securities market is newest to

Cambodia, which was required building the

strong laws and regulations and international

standard accounting and auditing system to

insure the transparency, accountability, and

good governance for both issuers and investors

to perform the financial investment in the good

manners, fairness and confidence. The

Securities Market of Cambodia (CSX) was

established on July, 2011 and it is a new

mechanism of the financial investment to

improve the local financial and economic

system to meet the existed banking system. The

mechanism allows government units and

corporations to take this opportunity to obtain

finance from the capital markets through

issuance of financial assets such as equities and

debt securities and other assets. At the same

time, publics and investors take this

opportunity to invest their money into the

financial assets to obtain earnings from the

interest rate, dividend and price appreciation of

financial securities.

In this context, the mechanism provided

the opportunity and benefits to development of

Cambodia‘s financial and economic system in

order to improve the national economic growth

by producing more goods and services to

complete the requirement of the domestic

markets.

Although, financial investment is a

source of economic growth, but it is a basis of

financial crises, because this mechanism has

created many challenges in the country, the

most capital flow in the capital markets is a


94

source of debt and currency crisis. Moreover,

most important concerns is that most of people

are still not participative in the securities

investment because their knowledge is still low

and limited in terms of investment awareness,

speculation, risk reduction, management and

protection of investor‘s right, transparency and

good governance, securities market operation,

and securities laws and implementation of

regulations and other policies involving

financial investment.

Therefore, in order to assure

Cambodia‘s financial investment process

operates effectively and efficiently. Cambodia

has to build strong laws and regulations to

insure that those policies were efficiently

carried out and protection of investor right

along with public awareness education as well

as confidence of investor. If do not so,

Cambodia has to face many challenges to this

investment. Because of the financial investment

is an opportunity for all corporations to develop

their investment in the future; but their value

has to depend on company‘s management

competence with publics‘ confidence. For

securities issuance proportion of companies

must be lower than company‘s total assets and

properties (Myers, 1977) and paying

compensation to shareholders and debtors in

dividend and interest (Smith, 1986).

Although, the financial investment provides

benefits to the national economy growth, but it

take along famous risks with the financial

globalization and financial infrastructure were

not yet properly implemented (Misking, 2003),

the financial globalization may bring the

country fall into the financial crisis because of

imperfection and other impact of external

factors in the global financial markets which

created the fraud, frighten behaviors and

attacking for speculation, even if, those

countries have a strong economic basis (Sergio,

2004).

II. Literature Review

The financial system has great

significant roles in daily lives. It‘s very

necessary to mobilize all resources to the

business firms and government units to produce

goods and services for everyday lives. The

system also allows people to transform their

money to borrowers through financial markets

with participation of financial intermediaries,

financial assets, and financial regulators. The

financial system has seven basic functions:

savings function, wealth and liquidity

functions, credit and payments functions, risk

protection and policy functions and in addition,

the system has creation of the savings and

investment‘s flow (Rose, 2003) as following:


95

Savings: households have used their

money remaining from expenditure and

paying tax for savings and business

firms use their income remaining from

tax payment, dividend and other

expenses for savings. Also, Government

units can do savings unless those units

have surplus income more than their

current expenses.

Investment: capital flow from financial

markets can support investment. The

corporations and public institutions

require more funds for constructing the

building, equipment, and purchasing

raw materials and goods for inventory

and producing goods and services. As

for government institutions also need

the capitals for building schools,

hospitals, roads, and support the public

services for developing productivity,

labor forces and standard of living.

The financial market has a vital function

in the global economic system and it‘s a heart

of global financial system (Rose, 2003). It

participates in economic growth for every

country in the world by allocating and

absorbing the savings from households and

companies through investment of financial

assets and transforms those savings to the

business firms and other institutions need more

funds. In economy, financial markets

encourage entrepreneurs and government units

for long-term investment development such as

projects of technological diffusion, capital

allocation, equity, risk management, corporate

governance and finance, human resource

management, financial services and

coordination between investors and issuers in

the financial investment.

The financial markets help business

firms and government units to raise funds for

investment, besides the banking system. If

there are no financial markets, the business

firms and institutions are really met difficulties

in finding lenders themselves. John Gurley and

Edward Shaw (1960) pointed out that each

business firms, households, and governments

are active in the financial system and markets,

they must conform to the following identity

(Rose, 2008):

(E) Current expense, (R) current income (∆FA)

holdings of financial assets

(∆D) paying outstanding debt and equities

Deficit budget: E>R; ∆D>∆FA=> borrower

Surplus budget: R>E; ∆FA>∆D => lenders

Balance budget: R = E; ∆D=∆FA=> neither

R – E = ∆FA - ∆D


96

This context showed that financial

market has a great important function in

transforming savings into the financial

investment to strengthen the economic health

and power. If households didn‘t use savings

into investment, so, the national economic

strength was shortened and the country‘s

revenue begins to fall down in the future

because of reduction on consumption expense

and living standard in country begins fall down,

as for unemployment rate was increased.

Some economists realized that the role

of financial system is acceleration for long-

term economic growth through capital

mobilization. Merton (2005) determined that

previous economic crises happened in Asian

countries in 1998 because of their careless on

financial market development, mostly did not,

so, which are caused the economic growth of

those countries began to fall down deeply.

Merton also affirmed that American economy

in the twentieth century has greatly relied on

the financial markets and strive to reduce usage

of the banking system. On the contrary, some

countries in Asia still mostly relied on the

banking system than the financial markets,

which was easily suffered. Based on the previous

experiences, when banking crisis happened, it is

really involved from one country to another country

due to the financial globalization and the regional

integration. So, the financial crisis was affected on

neighboring countries and then reaching to other

countries in the region and next, the world.

Financial market development also

creates a mechanism for financial investment in

country. This mechanism was defined as the

current commitment of money and other

resources in the expectation to gather future

benefits. Individuals purchase shares

anticipating that future proceeds from shares

that will justify both the time with their money

and risk of investment which were tied up (Zvi,

Alex and Alan, 2008) and it involves

expectation of positive return rate after

sufficient analysis has been made and degree of

risk which dictates the principal and future

income value be relative certain (Johnson,

1978). Funds of individual are used to generate

more income for them who are shareholders of

corporations and they are not required to

control any business of the company

(Australian Corporation Acts, 2001).

Based on Australian Corporation Acts

(2001) and Peter S. Rose (2003) showed that

the financial investment mechanism involving

between lenders and borrowers in the financial

markets. So, the lenders always were the

surplus budget units and individuals intend to

invest financial assets such as stock and bond,

generally defined as an ―obligations or debt

contracts‖ in money terms, that borrower of

funds has to issue the financial instruments


97

0

(promissory note) to the holders of securities or

investors (Cooper and Fraser, 1993).

Base on the Brownian models for

financial markets that‘s work of Robert C.

Merton and Paul A. Samuelson, as extensions

to the market models of Harold Markowitz and

William Sharpe (Tsekov, 2010). This model

aims to define the concepts of financial markets

and financial assets, portfolios, gains and

wealth. The assets have prices evolving

continuously in time and require an assumption

of perfectly divisible assets and a frictionless

market, meaning that no transaction costs occur

either for buying or selling. Another

assumption is that asset prices have no jumps

that is; there are no surprises in the market. The

model consist of N + 1 financial asset, where

one of these assets, called a bond or money-

market, is risk free while the remaining N

assets was called stocks, are risky. The

financial markets are defined in this formula:

M = (r,b,δ,σ.A,S(0))

A share of a bond (money market) has price S0

(t) > 0 at time (t) with S0 (0) = 1, is continuous,

{F (t); 0 ≤ t ≤ T} adapted, and has finite

variation. It can be decomposed into an

absolutely continuous part Sa (t) and

a singularly continuous part, by Lebesgue's

decomposition theorem as define below:

And

As the result in a stochastic differential

equation (SDE), we have:

This gives:

Thus, it can be easily seen that if S0a (t) is

absolutely continuous (i.e. A (.) = 0), then the

price of bond evolves like the value of a risk-

free saving account with instantaneous interest

rate r (t), which is random, time-dependent and

F (t) measurable.

Stock prices are modeled as being

similar to the bonds, except with a randomly

fluctuating component called its volatility. As a

premium for the risk originating from these

random fluctuations, the mean rate of return of

stock is higher than that of a bond.

In this case, if, the number of stocks (N) is

greater than dimension (D), it can be seen that

there are (N–D) stocks whose volatiles. So, the

number of stocks (N) is not greater than the

http://en.wikipedia.org/wiki/Financial_markets

http://en.wikipedia.org/wiki/Robert_C._Merton

http://en.wikipedia.org/wiki/Robert_C._Merton

http://en.wikipedia.org/wiki/Paul_A._Samuelson

http://en.wikipedia.org/wiki/Harold_Markowitz

http://en.wikipedia.org/wiki/William_Forsyth_Sharpe

http://en.wikipedia.org/wiki/Financial_markets

http://en.wikipedia.org/wiki/Assets

http://en.wikipedia.org/wiki/Portfolio_%28finance%29

http://en.wikipedia.org/wiki/Gains

http://en.wikipedia.org/wiki/Wealth

http://en.wikipedia.org/wiki/Frictionless_market

http://en.wikipedia.org/wiki/Frictionless_market

http://en.wikipedia.org/wiki/Bond_%28finance%29

http://en.wikipedia.org/wiki/Money-market

http://en.wikipedia.org/wiki/Money-market

http://en.wikipedia.org/wiki/Risk

http://en.wikipedia.org/wiki/Stocks


98

(Ioannis and Steven, 1991)

dimension (D) of the underlying Brownian

motion process.

Let S1 (t) ... SN (t) is the strictly positive prices

per share of the N stocks, which the continuous

stochastic processes are satisfying:

Here, gives the volatility of

the N stock, while bn(t) is its mean rate of

return.

In case of the discounted stock prices are:

Myers (1977) said that financial

investment opportunity is a choice for all

corporations and institutions to develop their

investment in the future, but their value must

depend on management‘s competence and

asset‘s issuance proportion of companies must

be lower than company‘s total assets and

properties. Also, Smith (1986) affirmed that

financial investment opportunity is an

expectation of companies to find possibility to

enlarge their investment project in the future

and paying compensation to the shareholders

and debtors in dividend and interest.

The financial globalization may

improve the financial sector development and

plays the best functions in the country‘s

financial system to help demanders of funds to

develop the business and investment project.

The functions of financial sector development

including: (1) use of free-cash flow and (2)

improvement of the financial infrastructure to

reduce the asymmetric information (Schmukler,

2004). Also, Stulz (1999) affirmed that

financial globalization can improve the

country‘s financial infrastructure through

strengthening the issuers and investors base on

principle of efficiency, transparency and

competition. There are some methods for

modernizing financial infrastructure including:

(1) improving of stronger competition in

allocating the capitals for investment project

and the efficient income generation, (2)

acceptation of international accounting

standard to improve transparency, (3)

introducing the financial intermediaries to

improve the financial sector toward a

international boarder. As for Crockette (2000)

also affirmed that the financial globalization

creates a technical connection of specific

financing outcome within domestic and global

markets and enables the foreign banks can join


99

with the local banks to improve financial

infrastructure to the developing countries,

which are carrying out the financial

globalization.

Graff (1999) confirmed that there are

four possibilities linking financial sector

development and economic growth: (1)

financial sector development and economic

growth are not connected, in the modern

European economic development in the 17th

century showed that the economic growth was

the outcome of certain growth, but the financial

sector development was the financial

institutional improvement, (2) the financial

sector development followed by economic

growth and (3) the financial sector

development is a reason of economic growth

and (4) the financial sector development is a

obstacle for economic growth referring to

uncertainty of securities investment and

financial crises.

Garresten, Lensink and Sterken (2004)

showed that there is connection between the

economic growth and capital market

development, primarily, the stock market,

which was measured by the market

capitalization, the listed securities and income.

Also, Niewerberg (2006) said that the stock

market development determined economic

growth of country. Based on the findings of

previous research of professors Laura, Victor

and Andreas (2008) studied on the involvement

of capital market development and economic

growth in Romania showed that there is really

involved between the capital market

development and economic growth by using

capital market variables:

1. Size variable:

Market capitalization and number of

listed shares,

Liquidity variables: trading volume and

liquidities proxy,

Volatility variables: Bucharest Stock

Exchange Index

2. GDP:

GDP growth rate

Real GDP

GDP growth rate per capita

Based on analysis in linear

regression and vector autoregressive methods

showed that regression (R1) and (R2) has

positively correlated between the economic

growth and the capital market development.

Particularly, it reflects the market capitalization

and economic growth is strongly correlated, the

trade volume on the capital market and real

GDP reflects a feed-back effect.

Although, financial globalization

provides benefits to the national economy

growth, but it also take along the risks when


100

starting an operation of financial globalization

and famous risk of the financial globalization is

the financial crisis. The current financial crisis

and crisis‘s augmentation always happened

after the developing countries have integrated

themselves within the global financial

liberalization and financial markets, which

were the main sources of financial crisis such

as the financial crises in Asia 1997, Russia and

Brazil in 1999, and Ecuador in 2000 and

Turkey and Argentine in 2001 and Uruguay in

2002. Misking (2003) confirmed that if the

financial infrastructure were not yet properly

implemented, thus the financial globalization

may weaken the health of financial system in

the country. Usually, financial system is not

operated as our intention because the lenders

and investors are facing asymmetric

information. Sergio (2004) said that the

financial globalization may bring the country

fall into the financial crisis because of

imperfection and other impact of external

factors in the global financial markets which

created swindle, frighten behaviors and

attacking for speculation, although, those

countries have the strong economic basis.

In reality, in Asia, there are two sources

of Asian financial crisis: (1) Current account

crisis: the crisis happened due to the

developing courtiers contain the imbalances of

the budget and payment because of their

commitment to accelerate the national

economy, so, they had to improve bigger

investment development by attracting the

foreign investment funds into the countries

which those funds have surplus of the local

savings to improve goods and services and

financing to support the construction and real

estate. For that reason, it might put the country

into the bigger deficit of current account.

Moreover, the quantities of import has sharply

increased and the quantities of export has

strongly dropped in the countries and

additionally, at that time, the price of oil on the

international market is increasing together with

foreign debt is bigger. So, this circumstance

might expand the deficit of current account is

biggest in country. (2) Capital account crisis:

due to deeply-surplus capital flow to finance

the deficit of current account and component of

those funds is debt and currency crisis that is an

original cause of banking system and currency

crisis. For currency crisis: due to the foreign

currency flow quickly poured out of those

deficient countries, as a result, the international

institutions were afraid to provide loan and

funds to those countries. Along with, banking

crisis is also happened because of internal

credit crisis of the country was strongly

reduced.

The world financial crisis started in

August 2007 in USA as subprime mortgage


101

crisis happening due to the imbalance of world

finance and liberalization of the global

financial markets. The crisis can be attributed

to a number of factors pervasive in both

housing and credit markets, factors which

emerged over a number of years. Causes

proposed include the inability of homeowner to

make their mortgage payment, overbuilding

during the boom period, risky mortgage

products, increased power of mortgage

originators, high personal and corporate debt

levels, financial products that distributed and

perhaps concealed the risk of mortgage default,

bad monetary and housing policies,

international trade imbalances, and

inappropriate government regulation. Excessive

consumer housing debt was in turn caused by

the mortgage-backed security, credit default

swap, and collateralized debt obligation, sub-

sectors of the finance industry, which were

offering irrationally low interest rates and

irrationally high levels of approval to subprime

mortgage consumers because they were

calculating aggregate risk using Gaussian

copula formulas that strictly assumed.

The European sovereign debt is the

financial crisis that has made difficult or

impossible for some countries in the euro area

to repay or re-finance the government debt

without assistance of third parties. The

European sovereign debt crisis resulted from a

combination of complex factors with

globalization of finance; easy credit conditions

during the 2002–2008 period that encouraged

high-risk lending and borrowing practices; the

2007–2012 global financial crisis; international

trade imbalances; real-estate bubbles that have

since burst; the 2008–2012 global recession;

fiscal policy choices related to government

revenues and expenses; and approaches used by

nations to bail out troubled banking industries

and private bondholders, assuming private debt

burdens or socializing losses. The Credit

default swap market also reveals the beginning

of the sovereign crisis.

Accordingly, Government of Cambodia

had carefully begun to develop the local capital

market. Specially, they made and adopted the

policy, which was called the Vision and

Financial Sector Development Plan for 2001-

2010 (FSDP), which was a long-term strategy

for financial sector development in order to

achieve the sound and market-based financial

system and then revised it as FSDP 2006-2015

aiming to provide strategy, guidance, and

framework to support the financial sector

development, particularly, is the roadmap to

establish the financial markets in Cambodia.

Cambodia is developing the financial

markets based on three reasons:

In the short term, addressing the risks

arising in the financial system

http://en.wikipedia.org/wiki/Balance_of_trade

http://en.wikipedia.org/wiki/Mortgage-backed_security

http://en.wikipedia.org/wiki/Credit_default_swap

http://en.wikipedia.org/wiki/Credit_default_swap

http://en.wikipedia.org/wiki/Collateralized_debt_obligation

http://en.wikipedia.org/wiki/Finance_industry

http://en.wikipedia.org/wiki/Subprime_mortgage

http://en.wikipedia.org/wiki/Subprime_mortgage

http://en.wikipedia.org/wiki/Gaussian_copula

http://en.wikipedia.org/wiki/Gaussian_copula

http://en.wikipedia.org/wiki/Financial_crisis

http://en.wikipedia.org/wiki/Euro_area

http://en.wikipedia.org/wiki/Refinance

http://en.wikipedia.org/wiki/Government_debt

http://en.wikipedia.org/wiki/Financialization

http://en.wikipedia.org/wiki/2007%E2%80%932012_global_financial_crisis

http://en.wikipedia.org/wiki/Real_estate_bubble

http://en.wikipedia.org/wiki/2008%E2%80%932012_global_recession


102

In the intermediate term, removing

obstacles to financial development in

other sectors

In the longer term, developing an

alternative mechanism for financing and

investment

Cambodia‘s economy today grew since

2010, after seriously fallen in 2009 which

affected on main sectors such as garment,

construction and tourism. Even if, the banking

system now is progressive, but financial sector

was in the first phase, its infrastructure could

not sustain the financial markets. So, Cambodia

is facing many challenges of financing from

banking system and the financial asset

gathering of big banks that might lead to the

systematic risk and high spending for

intermediaries.

Thus, the quantity of savings

mobilization in Cambodia now is still limited if

compared to the neighboring countries in

ASEAN. The gap between the saving and

investment sharply increased from -0, 7% in

2006 and also to -0.7% in 2010, so, Cambodia

could not relied only on the foreign savings

from abroad, it is necessary to encourage local

resource mobilization through the capital

markets and, moreover, the capability of center

bank is still unable fully to support the financial

system in the country. For financial products is

still focus on small sectors of credit and

savings. The money market and inter-banking

is still not operating. So, financing has relied on

the banking that an original source of financial

crisis in Asian 1997.

The absence of long-term financing,

human resources, and competences of

management and monitoring might lacking of

convinced credit, rural financing, payment

system, and information exchange, which are

main source of challenges. Insurance sector is

not yet fully support financial system, the

foreign insurance companies have operated the

life insurance services, although, the capital

source from the insurance sector is unable to

support the capital markets of Cambodia.

The Cambodia Securities Exchange

(CSX) was established on July 2011 as public

enterprise with government shareholding of

55% and the remaining stake held by the Korea

Exchange, a well-known securities exchange,

the Republic of Korea. The CSX is a platform

of securities trading and used as a mechanism

to raise funds for business and investment

development.

However, there was only one company

listing in 2011, so far, there is no more

companies listed in the CSX for securities

trading and also, the transactions are allowed to

be settled in U.S. dollars for a transitional

period of three years. Eventually, the stock


103

market has to boost the foreign exchange

market and requires upgrading the currency

market. Also, the bond market is not yet

developed due to lacking some components to

support the market and the principal ratio to

determine the value of issuance and other

involving mechanisms.

Even though, the stock market development is

good for short-term and long-term economic

growth, but there are many challenges for

recent situation of financial globalization of

Cambodia. The systematic risk and speculative

bubble should take into account in terms of the

imperfection and fraud in the financial market

causing failure of financial stability in the

country. Actually, Cambodia requires solving

challenges for CSX development because the

institutional investors from Japan, Korea and

China have also taken a bite of recent IPO but

whether those interests can be sustained for

long term or not. The corruption is also a big

concern even the government passed an anti-

corruption law in 2010, but the fear is still in

mind of investors and also the lack of the

capital market infrastructure and capacity

building can be challenging to the investors,

who are not familiar with the Cambodia

securities market.

III. Research Objectives

The research study aims to observe the of

financial investment mechanism occurring of

the capital market development in Cambodia.

Specially, this study intends to determine the

main objectives as following:

To define the mechanism of financial

investment supporting the economic

development of Cambodia.

To identify the benefits of financial investment

supporting the economic development of

Cambodia.

Find out the challenges of financial

investment affecting on Cambodia economy

development.

IV. Research Methodology

Descriptive research method has been

used in the study, which applied both deductive

and inductive research approaches. The data

collection were used in this survey are the

primary and secondary data. The structured

questionnaires are used to collect the primary

data with other specific information from the

institutional and individual investors. The

secondary data are also collected from the

government organizations, the National Bank

of Cambodia, SECC, Ministry of Finance and

Economy, the stock exchanges, WB, ADB,

IMF, EIC, NGOs and corporations, research

institutions and other institutions.


104

According to Tong yang Security 2012,

the key investors are about 300. The

populations from the institutional and

individual investors were selected as

respondents in this research. The convenience

sampling technique used in the survey by

drawing the samples from interviews based on

the proximity to researcher. As the result, we

select 120 respondents from the population size

300.

The study used the research tools of

Relevant Insights: sample size and margin of

error were calculated the level of confidence,

response percentage; sample sizes and margins

of error to test the significant differences in

convenience sample. As result, showed that the

convenience sampling was undertaken is

appropriate because it is about precision,

tolerance for risk and cost meaning that when

the study use the population size 300, we got

the sample size 120 and 95% of confidence

level and 5.3% of margin error. So, it was

assumed that at 95% confidence level is more

certain, but less precise to make sure the true

value falls in it. By the way, it was decided to

use affordable means to reach

representativeness of the target population.

Looking to the sample size calculation

of the Indochina Countries (Cambodia, Laos,

and Vietnam) found as in the normal

distribution table below:

Survey

Sample Size

Margin Of Error

Percent*

2,000 2

1,500 3

1,000 3

900 3

800 3

700 4

600 4

500 4

400 5

300 6

200 7

100 10

50 14

*Assumes a

95% level of

confidence

The table of calculation showed that if

the level of confident 95 per cent was taken and

the sample size from 100 to 200, Hence, the

Margin Error is about seven per cent. The

sample size is conformed to Taro Yamane

http://www.relevantinsights.com/research-tools

http://www.relevantinsights.com/research-tools


105

formula (1967), which was used to calculate

the sample sizes is shown below. A 90 per cent

confidence level and precision level (P) = 0.7

are assumed for this equation.

N

n = ————

1 + N(e)2

Where n is the sample size, N is the population

size (300), and e is the sampling error (0.07).

This formula was applied and the result of the

sample size are as below:

N 300

n = ————— = ——————— = 121

1 + N(e)2

1 + 300 (0.07)2

So, the result of the sample size is 121 (≈120),

the research was selected the investors 120 to

be the respondents in this survey.

To avoid the bias in selecting the respondents

the Systematic Random Sampling was used.

Data analytical methods were used the

quantitative and qualitative designs. The

primary data is analyzed by the quantitative

design basing on statistics and tabulation,

average calculation, percentage and growing

ratio in order to show and interpret those data.

The secondary data was also analyzed and

evaluated by the qualitative design in order to

make the conclusion and to meet further

information because the questionnaires are not

fully covered and questioned. So, the analysis

in this research is used both primary and

secondary data to validate on development of

financial investment in Cambodia is really

providing an opportunity or challenge to

Cambodian macroeconomics and financial

sector development.

V. Opportunity Of The Financial

Investment

The survey was done in order to analyze

on the research theme of the financial

investment opportunity based on the specific

variables for measuring and classified into

three categories; mechanism of financial

investment, benefits of financial investment

and challenges of financial investment in

Cambodia.


106

VI. Financial Investment

Development

Table 1: sources of financing were used for

current business improvement.

The table 1 illustrates that 52

respondents or 43.33% out of 120 respondents

receive the financing from bank. This is the

highest percentage, if compared to other 4

sources and then, 35% or 42 respondents got

the financing from individuals, and 11.67% or

14 respondents received the financing beside

system and 6.67% or 8 respondents got the

financing from abroad while only 4

respondents got the financing from other

sources. This is a lowest percentage of those

respondents.

Table 2: offering of financing sources for

current business development.


respondents or 60% out of 120 respondents

point out that the current financing source in

the country is not enough for them to develop

business. This is the highest percentage and

only 40% or 48 respondents told the the current

financing source in the country is anough for

them to develop business. This is a lowest

percentage of our respondents.

Sources of

Financing Frequency Percentage

Financing from

bank 52 43.33

Financing from

individuals 42 35.00

Financing beside

system 14 11.67

Financing from

abroad 8 6.67

Financing from

other sources 4 3.33

Total 120 100

Current

financing

sources

Frequency Percentage

Enough 48 40

Not enough 72 60

Total 120 100


107

Table 3: chance of CSX development to

support the new financing source.



pointed out that the CSX development in

Cambdia is available chance for them in order

to find new financing for business development

besides banking system. This is the highest

percentage and only 25% or 30 respondents

told that the CSX development at this time, it‘s

unavailable for them to raise fund because of

current economical situation of Cambodia is

not so good. This is a lowest percentage of our

respondents.

Table 4: Chance of fund raising in CSX to

support the business project.

Table 4 illustrates that 85 respondents

or 70.83% out of 120 respondents told that they

have a chance to raise fund in the CSX for

supporting their business project. This is the

highest percentage and only 29.17% or 35

respondents said that they have no chance to

raise fund in the CSX. This is a lowest


Table 5: Chance of Income Generation

From Securities Investment.



have no chance to generate further income from

securities investment. This is the highest

percentage and only 23.33% or 28 respondents

said that they have chance to generate further

income from securities investment. This is a

lowest percentage of our respondents.

Chance of CSX

development Frequency Percentage

Available 90 75

Unavailable 30 25

Total 120 100

Chance for

income

generation


Have chance 28 76.67

No chance 92 23.33

Total 120 100

Chance of fund

raising in CSX Frequency Percentage

Have chance 85 70.83

No chance 35 29.17

Total 120 100


108

Table 6: Purpose to list the company in the

CSX for financing to support the business

development.



told that they have purpose to list their

companies in the CSX for financing the

business project development and supporting of

their cash flow. This is the highest percentage

and only 48.33% or 58 respondents said that

they have no purpose to list their companies in

the CSX for financing. This is a lowest


Table 7: Preparation of firms to issue the securities

to publics.

Table 7 illustrates that 70 respondents

or 58.33% out of 120 respondents told that their

companies have not yet prepared to issue the

securities to publics. This is the highest

percentage and then, 29.17% or 35 respondents

said that they‘e preparing to issue securities to

publics and only 12.5% or 15 espondents told

that they have a little readiness to issue to

publics. This is a lowest percentage of our

respondents.

Purpose to list in

the CSX for

financing


Yes 62 51.67

No 58 48.33

Total 120 100

Preparation to

issue securities to

publics


A little readiness 15 12.50

Being preparing 35 29.17

Not yet prepared 70 58.33

Total 120 100


109

Table 8: Type of securities that your firm

intends to issue for financing.



prefer to issue stock than the other catagories.

This is the highest percentage and then, 26.67%

or 32 respondents said that their companies

prefer to issue bond and 6.67% or 8

respondents told that they are not at all and

only 3.33% or 4 respondents pointed out that

they like to issue other securities besides stock

and bond. This is a lowest percentage of our

respondents.

Table 9: Intention to develop your firm

into the financial industrial services.



told that they intends to develop the advisory

firms than the other. This is highest percentage

and then, 23.33% or 28 respondents said that

they like to develop brokerage firms and

19.17% or 23 respondents told that they are not

at all and 15% or 18 respondents pointed out

that they like to do the institutional investors

and next, 15 respondents or 12.5% like to

develop the securities dealing firms and last, 4

Type of

securities Frequency Percentage

Stock 76 63.33

Bond 32 26.67

Other securities 4 3.33

Not at all 8 6.67

Total 120 100

Intention to

develop the

financial service


Brokerage firm 28 23.33

Underwriting firm 4 3.33

Institutional

investor 18 15.00

Securities dealing

firm 15 12.50

Advisory firms 32 26.67

Not at all 23 19.17

Total 120 100


110

respondents or 3.33% like to do the

underwriting firms. This is a lowest percentage

of our respondents.

Table 10: purpose to generate extra

income from portfolio investment.



told that they have purpose to generate the

income by securities investment. This is the

highest percentage and only 25% or 30

respondents said that they have no purpose to

generate the extra income for individuals by

securities portfolio. This is a lowest percentage

of our respondents.

Table 11: form of earnings for your preference

in securities investment.



told that they prefer to take the earnings from

securities invesmeent in the form of dividend .


or 35 respondents said that they prefer to take

the earnings from securities invesmeent in the

form of interest and only 12.5% or 15

espondents told that they prefer increasing of

price of securities and last, 10 respondents or

8.33% showed that they do not at all.

Income

generation Frequency Percentage

Yes 90 75

No 30 25

Total 120 100

Form of

Earnings Frequency Percentage

Interest 35 29.17

Dividend 60 50.00

Increasing price 15 12.50

Not at all 10 8.33

Total 120 100


111

Table 12: type of securities that you prefer to

invest.



prefer to invest stock than the other catagories.


or 32 respondents told that they prefer to invest

bond and 8.33% or 10 respondents told that

they are not at all and only 12.5% or 15

respondents pointed out that they like to invest

other securities besides stock and bond.

Table 13: Other benefits to sustain the

Macroeconomics


respondents or 29.17% and 60 respondents or

50% out of 120 told that this mechanism has

other benefits to sustain macroeconomy such

as creating and increasing of employment and

further tax income. This is the highest

percentage and the last, only 25 respondents or

20.83% showed that this mechanism has

supported strengthening of legal framework

and financial system. This is a lowest


Type of

securities Frequency Percentage

Stock 60 50.00

Bond 35 29.17

Other securities 15 12.50

Not at all 10 8.33

Total 120 100

Benefits

sustaining

macroeconomics


added tax income 30 25

Creating of

employment 30 25

Legal framework

and financial

system

25 20.83

Both; increasing

of employment

and tax

35 29.17

Total 120 100


112

Table 14: awareness of the business firms and

institutions.


respondents or 50% out of 120 respondents,

they told that they didnt understand so much

about the rules and terms of securities issuance.

This is the highest percentage next, 60

respondents or 50% told at that they have some

understanding and the last, only 20

respondents or 16.67% told that they

understand about the rules and terms of

securities issuance. This is a lowest percentage

of our respondents.

Table 16: basic awareness for securities

investors.



didnt have basic awareness of securities

investment This is the highest percentage and

next, 45 respondents or 37.5% told that they

have some understandinding in this regard and

the last, only 15 respondents or 12.5% told that

they have a basic awareness of securities

investment. This is a lowest percentage of our

respondents.

Awareness of

business firms and

institutions


Understanding 20 16.67

Some

understanding 60 50.00

Not understanding 40 33.33

Total 120 100

Basic awareness for

securities investors Frequency Percentage

Understanding 15 12.50

Some understanding 45 37.50

Not understanding 60 50.00

Total 120 100


113

Table 17: Risky worries of securities

Investment.



are worry about risk of securities

investment.This is the highest percentage and

next, 40 respondents or 33.33% told that they

are some worry in this regards and the last,

only 5 respondents or 4.17% told that they are

nothing worry. This is a lowest percentage of

our respondents.

Table 18: Worried risky type of securities

investment.



told that the worried risky type of securities

investment is unable to pay due to bankruptcy.

This is the highest percentage and last and 32

respondents or 26.67% showed that the worried

risky type of securities investment is unable to

pay dividend by due date and next, 20

respondents or 16.66% each are worried about

unable to pay interest and decreasing of price

Risk of

securities

investment


Worry 75 62.50

Some worry 40 33.33

Nothing worry 5 4.17

Total 120 100

Worried risky

type Frequency Percentage

Increased debt

being unable to

repay the principal

32 26.67

Unable to pay

interest by due

date

10 8.33

Unable to pay

dividend by due

date

30 25.00

Unable to pay due

to bankruptcy 35 29.17

Decreasing of

price due to any

crisis

10 8.33

Other risks 3 2.50

Total 120 100


114

due to any their crisis and last only 3

respondent or 2.5% showed that they are worry

about other risks happening in their investment.

This is a lowest percentage of our respondents.

Table 19: confidence of publics to securities

sector development in Cambodia, in term of

legal framework implementation, market

operation, and management efficiency and

investor protection.


respondents or 58.33% out of 120 respondents,

have not so trust on securities sector

development in Cambodia. This is the highest

percentage and next, 40 respondents or 33.33%

told that they have trust in this regards and the

last, only 10 respondents or 8.33% told that

they have not trust in this matter. This is a

lowest percentage of our respondents.

VII. FINDINGS SUMMARY

Referring to all above analyzed tables

pointed out that Cambodia nowadays has used

the banking system as major financing source

for the business expansion and long-term

investment project.

The findings showed that around 70

percent of investors expressed the lack of

financing source within the business

development and supported to develop the CSX

in the country. In order to resolve the problems,

the Government of Cambodia has found the

Cambodia Securities Market (CSX) in order to

provide the opportunities and benefits to the

business firms and government sectors to raise

more funds for business expansion. At the same

time, the most of them hope to have a chance to

raise more funds besides banking system in

order to generate more income from the

financial investment.

Additionally, the findings pointed out that

around 60 per cent of companies want to list

their firms in the CSX, although; they are not

yet to prepare themselves to list in the CSX, but

they desire to issue and invest the stock and

bond for extra income generation. Additionally,

they intend to contribute into the financial

industrial services by developing the advisory

firms, brokerage firms and underwriting firms.

Moreover, even though, most of investors are

Confidence of

publics Frequency Percentage

Trust 40 33.33

Not so trust 70 58.33

Not trust 10 8.33

Total 120 100


115

not aware of financial investment process, but

they wish to invest the stock and bond for

additional income. Additionally, this

mechanism has supported macroeconomics

such as tax income, employment creation and

legal framework improvement as well as

financial sector development.

Furthermore, the result showed that around 70

per cent of the investors are not aware of the

financial investment process, thus; they are so

worry about high risk in the securities

investment in terms of carrying out of the

relevant legal framework, transparent and

efficient market operations and managements

as well as the investor protection and is unable

to repay due to bankruptcy and other crisis.

Also, most of the companies didn‘t have

sufficient knowledge of the financial

investment, so; they assumes that the rules and

conditions of CSX are extreme rigorous for

them to raise funds in the CSX that are main

concerns for unconvincing on the financial

investment process in Cambodia.

Accordingly, based on those results, I would

like to conclude that the financial investment

development in Cambodia today is facing many

problems because the findings showed that

even, most of companies and investors support

to develop the CSX, but they are not yet to

prepare themselves to list into the CSX and

they didn‘t sufficiently have the financial

investment knowledge, thus; they supposed that

the conditions of CSX are extreme rigorous to

raise funds and are so worry about high risk in

the securities investment in terms of carrying

out of the relevant legal framework, transparent

and efficient market operations and

managements as well as the investor protection.

For that reason, which caused most of investors

and companies are hesitant to participate in the

financial investment development in Cambodia.

Although, the financial investment

development in Cambodia today is not yet

profited to the current economy development of

Cambodia, but at least, there is some benefit to

sustain the macroeconomics for instance, tax

income, employment creation and legal

framework improvement as well as financial

sector development. Moreover, most of

companies and investors support to develop the

CSX and they desire to list their firms in the

CSX and plan to issue and invest the stock and

bond for income generation, and intend to take

part in the financial service industry. Thus, this

action is a helpful contribution to support

financial investment development in Cambodia.


116

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World Economy Watch (2011), Investment

Securities and Speculation. Retrieved

from


ment/investment-securities.html.

YTM Calculation, www.moneychimp.com.

Zhang, Fengbo (2008), Perspective on the

United States Sub-prime Mortgage

Crisis, Special Report. Retrieved from

https://www.

sites.google.com/site/fengbozhang/m.

Zvi, Kane, and Marcus (2008), Essentials of

Investments, Seventh International

Edition,

*Dr. Chhiv S. Thet is a Professor of

Pannasastra University of Cambodia (PUC),

and Asia Euro University (AEU) and

Cambodia Specialty University (CUS). Dr.

Chhiv holds BBA and Master Degrees in

Public Administration and Political Science and

PhD in Economics. Dr. Chhiv currently is

Assistant Dean of Graduate School of

Management and Economics of PUC and a

Chairman of CMI Cambodia (NGO). Previous

to entering academic work, Dr. Chhiv was a

Government Official in the National Assembly

of Cambodia and he started teaching the

professional courses of the capital markets and

Forex and Derivatives markets since 2008 at

CMI Cambodia and other universities with

cooperation programs in Phnom Penh. He may

be reached at [email protected].


http://www.economywatch.com/investment

http://www.economywatch.com/investment

http://www.economywatch.com/investment/investment-securities.html

http://www.economywatch.com/investment/investment-securities.html

http://www.moneychimp.com/

http://en.wikipedia.org/w/index.php?title=Fengbo_Zhang&action=edit&redlink=1

http://sites.google.com/site/fengbozhang/m




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Journal Final No.1 Vol.2 Jul- Dec 2013

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Transcript of Journal Final No.1 Vol.2 Jul- Dec 2013